reality is only those delusions that we have in common...

Saturday, May 10, 2014

week ending May 10

Yellen says it may take years to shrink Fed balance sheet (Xinhua) -- The U.S. Federal Reserve Chair Janet Yellen said on Thursday that the Fed needs more time to decide the appropriate size of its balance sheet and expects the portfolio of assets to gradually decline over time after it finally begins to tighten policy. "We've not decided and will probably wait until we're in the process of normalizing policy to decide just what our long-run balance sheet will be, but clearly it will be substantially lower than it is now, and it will take a period of a number of years," she told lawmakers when she testified before the Senate Budget Committee. "This could happen, simply by ending our reinvestment policy at some point. If we do that and nothing more, it would probably take somewhere in the neighborhood of five to eight years to get it back to pre-crisis levels," she added. After three rounds of asset purchases meant to stimulate the U. S. economy, the Fed's balance sheet has swollen to more than 4 billion dollars from about 800 billion dollars in 2007. The Fed is reinvesting principal payment from maturing mortgage securities to keep its holding steady. In her testimony to a House panel on Wednesday, Yellen said the central bank had indicated that it does not intend to sell mortgage-backed securities from its portfolio, "except perhaps when the holdings are very small." She suggested that when the Fed stops reinvesting funds from expired assets, its holdings of mortgage-backed securities would begin to decline over time as principal matures.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--May 8, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Takeaways From Fed Chairwoman Janet Yellen’s Testimony -- Federal Reserve Chairwoman Janet Yellen more or less sticks to the script in her prepared testimony before the congressional Joint Economic Committee Wednesday. She, for the most part, reiterated the views expressed by the Fed’s policy-making committee at its most recent meeting last week, though she hits harder on concerns about the slowing recovery in the housing market than the full group did. Here are five quick takeaways from those prepared remarks (her words in italics):

  • 1) Ms. Yellen’s testimony makes clear that the Fed isn’t overly concerned about the dismal growth numbers that came in for the first quarter. “Although real GDP growth is currently estimated to have paused in the first quarter of this year, I see that pause as mostly reflecting transitory factors, including the effects of the unusually cold and snowy winter weather. With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter.”
  • 2) She does, however, sound a louder warning bell on the slowdown in the housing market than the Fed committee did last week. “Another risk – domestic in origin – is that the recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery.”
  • 3) Ms. Yellen also touched on the risk that the situation in Ukraine could pose to the world economy, though she doesn’t specifically reference the country, saying that “one prominent risk is that adverse developments abroad, such as heightened geopolitical tensions or an intensification of financial stresses in emerging market economies, could undermine confidence in the global recovery.”

In Which I Once Again Do Not Understand the Thinking of the Federal Reserve’s FOMC - Brad DeLong -- Looking back over the past two years, at no point has the growth rate of GDP been such as to even equal what we used to confidently see as the potential growth rate of the American economy: we have been falling further behind rather than catching up to potential... BEA: "Real gross domestic product--the output of goods and services produced by labor and property located in the United States.....increased at an annual rate of 0.1 percent in the first quarter (that is, from the fourth quarter of 2013 to the first quarter of 2014), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.6 percent... Looking back over the past two years, we have been falling further behind rather than catching up to potential. Over the past four quarters, the growth rate of real GDP has been 2.33%/year. Over the past eight quarters, the growth rate of real GDP has been 1.81%/year. If the output gap has been shrinking, it has not been because growth has been fast enough to converge to (the normal path of) potential output but rather that a depressed economy is transforming cyclical into structural non-employment and pulling the potential productive power of the economy downward. In this context, I cannot help but find the Federal Reserve's latest communique strange: Federal Reserve issues FOMC statement--April 30, 2014: "Information received since the Federal Open Market Committee met in March... ...indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. I cannot help but feel that a much better communique would acknowledge that over the past two years Federal Reserve policy has not been stimulative enough--that when inflation, output, and employment indicators are all below their target levels, the obvious implication is that the Federal Reserve should do more. In such a context, a failure to not decrease but increase the degree of policy accommodation requires a tight and convincing argument that additional policy accommodation runs large risks.

Is the Fed near its target? -- The BLS reported on Friday that the U.S. unemployment rate fell all the way to 6.3% in April. That marks significant progress in terms of the bull’s eye of Fed accountability proposed by Federal Reserve Bank of Chicago President Charles Evans which Econbrowser discussed 2 months ago. The unemployment rate has dropped steadily over the last 4 years with no increase so far in the inflation rate. The current unemployment rate of 6.3% is actually slightly below the average 6.4% that the U.S. economy has experienced since 1970. But while the labor market is starting to look more normal according to conventionally measured unemployment, other labor market indicators remain distinctly unhealthy. The number of Americans who have been looking for work for longer than 6 months is still higher than it had been even at the worst of any previous postwar recession. And last month’s improvement in the unemployment rate came entirely from a drop in the labor force participation rate. Some individuals who reported in March that they were out of work and actively trying to find a job (in which case the BLS counts them as “unemployed”) instead reported in April that they are still not working but did not actively look for a new job within the last four weeks (in which case the BLS counts them as “not in the labor force”). To be sure, much of the decrease in the participation rate seems attributable to long-term demographic factors, as the decline was evident well before the Great Recession. Even so, while the distinction between “unemployed” and “not in the labor force” might be a sharp one from the point of view of the definitions of the BLS, as a practical matter for many potential workers it clearly is not. In any given month, the number of people who change from being “not in the labor force” to “employed” is always greater than the number of people who change from being “unemployed” to “employed”, suggesting that many of those counted as not in the labor force may in fact be more interested in getting a job than some of those counted as unemployed.

Fed’s Fisher: Too Soon for Talk of Rate Hikes - It’s too soon for the Federal Reserve to begin thinking about raising interest rates despite a strengthening U.S. economy, Dallas Fed President Richard Fisher said on Sunday.  Mr. Fisher, a self-described inflation hawk who opposed the central bank’s latest round of bond purchases, said the weakness in first quarter U.S. economic growth, which nearly stalled according to the latest gross domestic product reading, was due to “weather-related one-off events.”Encouraged by a report on Friday showing a gain of 288,000 new jobs, Mr. Fisher said the better trend is likely to continue.“We expect , and I certainly expect, to get the kind of numbers we just saw,” Mr. Fisher said in an interview with Fox News. “We’re moving in the right direction.”Asked about the potential timing of eventual interest rate hikes, Mr. Fisher said it was too early to start the debate. He noted the central bank is gradually paring down its bond purchases, having reduced them to $45 billion per month at its April policy meeting. “I personally expect us to end that program in October. That’s the first step,” he said. “Then we have to see how the economy is doing, including these broader measures of unemployment, and where we stand, before we can talk about how we might move the short-term rate.”

Dallas Fed’s Fisher: Low Rates Will Stay as Long as Inflation Under 2% - Federal Reserve Bank of Dallas President Richard Fisher said Friday he supports ending the central bank’s bond-buying stimulus program this year, while adding it is very likely that very low interest rates will prevail for some time to come. “There is abundant liquidity to finance economic expansion, and the [Federal Open Market Committee] will assure that it remains affordable as long as the prospect of inflation rising above its 2% target remains in abeyance,” Mr. Fisher said in the text of a speech prepared for delivery before a local group in New Orleans. Mr. Fisher is a voting member of the Fed’s monetary-policy setting FOMC this year. He has been a persistent critic of the recent round of Fed moves to stimulate growth, done mainly by buying longer-dated Treasury and mortgage bonds in a bid to lower borrowing costs to stimulate growth and lower unemployment. Heartened by signs of economic improvement, the Fed has been cutting the pace of its bond-buying program this year — the monthly buying rate now stands at $45 billion — and officials broadly agree the effort will be wound down this year. “Barring some destabilizing development in the real economy that comes out of left field, I will continue to vote for the pace of reduction we have undertaken, reducing by $10 billion per meeting our purchases and eliminating them entirely at the October meeting with a final reduction of $15 billion,” Mr. Fisher said. The next big question for the Fed is what happens with short-term interest rates, which it currently pegs essentially at zero. Most central bankers agree interest rates won’t be increased until sometime in 2015, and with inflation well below the Fed’s 2% target, there’s little urgency to act. Mr. Fisher reiterated in his speech his ongoing distaste for the Fed’s asset-buying program and explained why he doesn’t support an even faster draw down.

Foreign Banks Collecting Billions From the Fed -- In 2014, the Fed will pay an estimated $6.74 billion in interest on reserves to banks overall, with an estimated $3.37 billion headed to foreign banks specifically, according to an analysis from J.P. Morgan which used Fed data. Analysts say paying interest on reserve accounts helps the Fed exercise more control over short-term rates, and the Fed says it eliminates “the implicit tax that reserve requirements used to impose” on banks. Banks are required to keep a certain amount of cash in reserve at the Fed, but are also allowed to keep more than required at the central bank. As of April, total reserves at the Fed amounted to about $2.66 trillion—only about $80 billion was actually required—up from about $1.83 trillion in April of last year, according to Fed data. In 2008, the Fed began paying interest, currently at an annual rate of 0.25%, on these reserves.Banks can borrow money on a short-term basis from entities like money market mutual funds, perhaps at rates around 0.15%, and then park the money at the Fed and earn 0.25%, in what is considered a risk-free transaction. The trade is attractive to U.S. branches of foreign banks that do not pay fees to the Federal Deposit Insurance Corp. Banks making that trade “are actually doing what the Fed is incentivizing them to do,” said Alex Roever, head of U.S. rates strategy at J.P. Morgan. “The Fed’s willing to pay that cost, and when you look at everything the Fed earns on its balance sheet, what they pay out on reserves is relatively low.”The interest was designed as a way to help policymakers control short-term rates. In September of last year, the Fed also introduced a “reverse repo” program that effectively allows money market funds and other entities to invest cash directly with the Fed. In a repurchase agreement, or repo, one party sells securities to the other and agrees to buy them back later at a higher price.

Former Fed leader sees market-rattling infighting at central bank  (Reuters) - After an extended period of relative peace among members of the U.S. Federal Reserve's interest rate policy-making committee, fireworks will erupt in coming months as they debate how to reduce the central bank's multi-trillion-dollar balance sheet, a former vice-chairman of the central bank said on Sunday. "The Fed may get more raucous about what to do next as tapering draws to a close," Alan Blinder, a banking industry consultant and economics professor at Princeton University said in a speech to the Investment Management Consultants Association in Boston. The cacophony is likely to "rattle the markets" beginning in late summer as traders debate how precipitously the Fed will turn from reducing its purchases of U.S. government debt and mortgage securities to actively selling it. The Open Market Committee will announce its strategy in October or December, he said, but traders will begin focusing earlier on what will happen with rates as some members of the rate-setting panel begin openly contradicting Fed Chair Janet Yellen, he said.

Fed’s Stein: Even Clearest Communications Won’t Stop Volatility - –Even the clearest communication by Federal Reserve officials cannot be expected to eliminate market volatility surrounding the central bank’s policy plans, but the market, for now, appears to be in line with the Fed’s own thinking, Fed Governor Jeremy Stein said in a speech Tuesday. Mr. Stein pointed to last spring, when then-Fed Chairman Ben Bernanke spooked markets by starting to talk about the possibility that the Fed would start winding down its signature bond-buying program. Between early May and the Fed’s June policy meeting, long-term Treasury yields rose from 1.60% to 2.70%, Mr. Stein observed. Yet a regular survey of Wall Street’s biggest banks by the New York Fed showed that their expectations about the ultimate size of the bond-buying program–and thus, the program’s end date–hardly budged over the same period, he said. Mr. Stein didn’t fault the Fed’s communication during the period. Instead, the period illustrates that “there are very real limits to what even the most careful and deliberate communications strategy can do to temper market volatility,” said Mr. Stein in a speech given Tuesday evening before the Money Marketeers of New York University in New York City. “This is just the nature of the beast when dealing with speculative markets, and to suggest otherwise–to suggest that, say, ‘good communication’ alone can engineer a completely smooth exit from a period of extraordinary policy accommodation–is to create an unrealistic expectation,” said Mr. Stein, who plans to step down from his post May 28 to return to Harvard University.

The Seesaw Approach to Monetary Policy - David Beckworth -In my last post, I made the following comment: A NGDP target aims to stabilize total dollar spending. It is one target that has embedded in it both the supply of and the demand for money (i.e. total dollar spending = money supply x velocity of money). The beauty of a NGDP target is that the Fed does not need to know what is exactly happening to the money supply or money demand. All the Fed only needs to worry about is the product of the two components. There is no need to track the money supply or estimate money demand. By focusing on total dollar spending, the Fed will be fostering a stable monetary environment where movements in money supply and money demand are offsetting each other.  Another way of saying this is that by targeting the growth path of NGDP, the Fed will be taking a seesaw approach to monetary stability. That is, endogenous changes in the money supply will be automatically offset by changes in money velocity and vice versa. This is illustrated below: Now to be clear, most money is inside money--money endogenously created by banks and other financial firms--and the Fed only indirectly influences its creation. However, it does so in an important way by shaping the macroeconomic environment in which money gets created. Consequently, it can have a large influence on inside money creation. For the same reason it can also influence how stable is the velocity of money. By successfully stabilizing the expected growth path of total dollar spending, the Fed will be causing this seesaw process to work properly.

Why QE May Have Done Net Damage  - Yves Smith - Quantitative easing has been a controversial policy even among the financiers who benefitted from it. The Fed has brushed those critics off, its confidence based on the fact that the economy didn’t go into a Great Depression-style black hole, which Fed officials believe was the result of its ministrations. One suspects the central bank regards its critics as an uninformed lot: goldbugs and hyperinflationists, right-wingers who don’t like government intervention in markets, pinkos who don’t like banks.  But there’s a world of difference between saying that the alphabet soup of special programs, which did shore up all sorts of players who didn’t have direct access to the Fed’s coffers, benefitted, and to say that QE, which didn’t begin until March 2009, was a plus to the economy. (And the cheery view of the Fed’s “success” during the crisis brushes by the fact that the Fed was fixated on rescuing only the financial system, and never even considered ways to do that, like restructuring debts, that would also have helped households and real economy businesses). In addition, QE and its fellow traveller, ZIRP, has imposed a huge tax on retirees and savers, who can’t find high yielding, safe assets. The central bank believe they’d of course do the rational thing of either spending more of their principal or going into riskier assets (Gazprom, anyone? It has a nice 5.3% yield, although you would have done even better buying it six weeks ago). Instead, most are hunkering down and trying to make do on lower income.In a CNBC opinion piece Paul Gambles, the managing partner of MBMG Group, provided an elegant kneecapping of QE based on central bank research. Many of the arguments will be familiar to NC readers.

Yellen Wants a Community Banker on the Federal Reserve Board - Senators from both sides of the aisle have told President Barack Obama they want to see a community banker sitting on the Federal Reserve Board of Governors sometime soon. So does Janet Yellen. “I’m in favor of that,” the Fed chairwoman said Thursday during a hearing before the Senate Budget Committee, when asked by Sen. Angus King (I., Maine) for her thoughts on having a community banker on the board. Three nominees to fill vacancies on the seven-member Fed board are currently waiting for a vote by the full Senate. Former Bank of Israel chief Stanley Fischer and former Treasury Department official Lael Brainard are set to fill two open slots. Fed Governor Jerome Powell, a former investment banker, has been nominated to a new term. There is one additional open seat right now, and when Fed Governor Jeremy Stein leaves May 28, there will be yet another opening to fill. A bipartisan group of senators has been lobbying for at least one community banker to fill ones of those two vacancies. Ms. Yellen pointed to two recently-departed members of the Fed board with extensive community banking experience: Betsy Duke, who ran a community bank in Virginia and later served as an executive at the American Bankers Association, and Sarah Bloom Raskin, who is now the No. 2 official at the Treasury. “They made huge contributions and I would love to see a replacement,” Ms. Yellen said.

Why Prices Will Rise Exponentially Over the Next 10 Years: Something just doesn't make sense here… In 2013, the U.S. budget deficit came down to $680 billion. Finally, after four consecutive years of annual budget deficits of more than $1.0 trillion, the government got its annual "hole" under the trillion-dollar level, and it seemed as though we were headed in the right direction. But stop. The government is now reversing its track… According to the Congressional Budget Office (CBO), the budget deficit of the U.S. government will decline to $492 billion in 2014, but from then on it will increase and reach more than $1.0 trillion annually again by 2024! The CBO projects that between 2015 and 2024, the accumulated budget deficit for the U.S. government will be $7.6 trillion. (Source: Congressional Budget Office web site, last accessed April 30, 2014.) The biggest expense increases for the government, Social Security payments are projected to almost double by 2024, and annual healthcare expenses are going to increase from $936 billion in 2014 to $1.7 trillion in 2024. What this means is that the national debt will rise to $24.0 trillion by 2024 if everything goes as planned—if we don't have another war between now and then, if we face no natural catastrophes that would require federal support, and if interest rates don't run up too much (all three of which I believe will happen)! My personal projection is that 10 years from now, we will be looking at national debt in the $30.0 to $34.0 trillion range. I believe annual budget deficits of more than $1.0 trillion will become the norm, not the exception. When I look at this and the fact that China has been noticeably selling U.S. debt, the big question becomes: who will buy all the U.S. Treasuries the government will need to sell to finance its debt? I believe the Federal Reserve will need to get back into the money printing business in a big way to fund that debt.

Bumping against the ceiling -- AMERICA'S recent economic data have not exactly been the easiest to interpret. On April 30th Americans got the rather disappointing news that their economy grew at just a 0.1% annual pace in the first quarter. Just a few days later, on May 2nd, the Bureau of Labour Statistics reported that the plateau in growth hadn't kept firms from hiring. BLS announced the addition of 288,000 net new jobs in April, with strong upward revisions to hiring in prior months. In the three months to April the economy added 713,000 jobs. On top of all that, the unemployment rate sank nearly half a percentage point in April, tumbling to 6.3%. Yet here the weirdness returned. The unemployment rate dropped on a decline in the number of unemployed of 733,000. But that fall was more than accounted for by unexpectedly slow growth in the labour force; BLS increased its estimate of the number of Americans not in the labour force by nearly one million workers. The figures, on growth and hiring, have no doubt been influenced by awful winter weather. Underlying economic growth is surely faster than 0.1%, and some of the strangeness in the unemployment figures may work itself out in coming months.  So, has America finally turned the corner? Has the pace of employment growth at long last picked up, creating the possibility that the American economy may close some of the yawning gap between the number of Americans now working and the number that might have been on the job but for the Great Recession? That all depends on the Federal Reserve. Here is a dose of perspective:

Fed Chair Janet Yellen: Expects Growth Rate to Increase, "A high degree of monetary accommodation remains warranted"Testimony by Chair Yellen on the economic outlook. A couple of excerpts: Looking ahead, I expect that economic activity will expand at a somewhat faster pace this year than it did last year, that the unemployment rate will continue to decline gradually, and that inflation will begin to move up toward 2 percent. A faster rate of economic growth this year should be supported by reduced restraint from changes in fiscal policy, gains in household net worth from increases in home prices and equity values, a firming in foreign economic growth, and further improvements in household and business confidence as the economy continues to strengthen. Moreover, U.S. financial conditions remain supportive of growth in economic activity and employment. And on monetary policyAs always, our policy will continue to be guided by the evolving economic and financial situation, and we will adjust the stance of policy appropriately to take account of changes in the economic outlook. In light of the considerable degree of slack that remains in labor markets and the continuation of inflation below the Committee's 2 percent objective, a high degree of monetary accommodation remains warranted.

Yellen warns on US housing market risk - The US housing market slowdown poses a fresh risk to growth in the world’s largest economy, Federal Reserve chairwoman Janet Yellen has warned in testimony to Congress.  Ms Yellen said the Fed’s otherwise optimistic outlook could be undermined if disappointing housing activity continued for the rest of the year. Her remarks suggest the Fed still sees significant economic threats, despite encouraging data such as April’s jobs growth of 288,000, and will keep slowing its asset purchases at the modest pace of $10bn per meeting. “Readings on housing activity – a sector that has been recovering since 2011 – have remained disappointing so far this year and will bear watching,” said Ms Yellen. “The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery.” New housing starts and existing home sales are both down on a year ago as higher interest rates, tight mortgage availability and slow income growth damp activity in a sector crucial to the broader recovery. Ms Yellen’s testimony marks her first public comments since last week’s meeting of the Federal Open Market Committee, when the Fed slowed its asset purchases by another $10bn a month to $45bn, and sounded a more positive note on the economy.

Climate Change and Its Potential Disruptions Not Big Factor in Fed Forecasts - A prominent government report released Tuesday stated plainly that climate change driven by global warming is disrupting the economy, and if something doesn’t happen to address this situation, the trouble will only get worse down the road. Given the broad scientific support for the idea that rising temperatures are altering our world in an unwelcome way–think worsening storms, droughts, wildfires and slowly rising sea levels–one might think the Federal Reserve would be trying to factor this shifting landscape into its economic forecast. But according to one veteran central-bank official, climate change thus far isn’t a big factor in Fed economic thinking. “I don’t know of any climatologists on the [Fed] board staff, unless there are some with a hobby of climatologist,” Federal Reserve Bank of Philadelphia President Charles Plosser said Thursday after a speech on monetary policy rules in New York. Mr. Plosser had been asked by an audience member whether the Fed was moving to incorporate the scientific consensus into its thinking about the economy. It is an important issue: The Fed formally offers, on a quarterly basis, predictions of the economy’s future. These forecasts, which currently range out until 2016, are meant to show what central bankers are anticipating, in turn helping observers gain insight into the possible path of monetary policy. If global warming is in fact creating economic disruptions, it would be something the Fed would want to take on board. As Mr. Plosser explains it, for global-warming-related factors to show up in the Fed’s forecasts, that will have to happen via changes in the overall arc of economic data.

Q1 2014 GDP Details on Residential and Commercial Real Estate  - The BEA released the underlying details for the Q1 advance GDP report.The first graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes). A few key points:
1) Investment in single family structures is now back to being the top category for the first time in 22 quarters.  Home improvement was the top category for twenty one consecutive quarters following the housing bust ... but now investment in single family structures is the top category once again.
2) Even though investment in single family structures has increased significantly from the bottom, single family investment is still very low - and still below the bottom for previous recessions. I expect further increases over the next few years.
3) Look at the contribution from Brokers’ commissions and other ownership transfer costs. This is the category mostly related to existing home sales (this is the contribution to GDP from existing home sales). If existing home sales decline due to fewer foreclosures, this will have little impact on total residential investment.

Q1 GDP Cut To -0.6% At Goldman, -0.8% At JPMorgan  The US "recovery" is starting to feel more and more recessionary by the day. As we warned after we reported the trade deficit, it was only a matter of time before the Q1 GDP cuts came. And come they did, first from Barclays, and now from Goldman, which just doubled its GDP forecast loss for the past quarter from -0.3% to -0.6%.  BOTTOM LINE: The March trade deficit was roughly in line with consensus expectations, narrowing from February. However, imports were substantially higher than the Commerce Department had assumed in its initial estimate for Q1 GDP. We reduced our Q1 past-quarter tracking by three-tenths to -0.6%Update: JPM just jumped on the bandwagon and cut Q1 GDP to -0.8% from -0.4%. Don't worry: it snowed.

Trade Data Indicate Economy Contracted - The U.S. economy likely contracted in the first quarter for the first time in three years, private forecasters said Tuesday after the nation's trade gap narrowed less than expected in March. Both exports and imports rose in March, a sign of strengthening demand at home and abroad that should bolster the economy into the spring. But the Commerce Department had assumed a larger decline in the trade deficit when it estimated last week that U.S. economic output barely expanded in the first three months of 2014.  A revised reading of U.S. gross domestic product, expected at the end of May, could be downgraded from the current estimate that the economy expanded at a seasonally adjusted annual rate of 0.1% in the first quarter.  J.P. Morgan Chase economists now estimate GDP contracted at a 0.8% pace in the first three months of 2014. Macroeconomic Advisers pegged the decline at 0.6%. Even some of the more optimistic estimates point to slight output shrinkage in the first quarter. Barclays Capital economists see a 0.2% decline and BNP Paribas put the GDP drop at a 0.1% pace. Exports were weak at the start of the quarter, and simply didn't recover enough by the end of the quarter,"

First-Quarter U.S. Economic Slump Looking Uglier by the Day - It now looks like the world’s largest economy contracted in January through March instead of eking out a 0.1 percent gain at an annualized rate as reported by the Commerce Department last week. The latest knock came from data issued today. Although the trade deficit shrank in March to $40.4 billion from $41.9 billion as exports grew, the narrowing was less than the government had projected when putting together the advance estimate on gross domestic product.  Those figures, combined with previous reports on construction spending, inventories and revisions to retail sales, mean the economy probably reversed course in the first three months of the year. The bad news won’t last long, though, as many of the same analysts that are notching down first-quarter growth rates are also marking up forecasts for this quarter. The Commerce Department’s advance GDP report last week showed declines in business investment, housing and government spending, along with the trade deficit, held back growth at the start of the year. Some economists blamed unusually harsh winter weather for the slowdown and projected a pickup this quarter.

Humiliated On Its Q1 GDP Prediction, Goldman Doubles Down, Boosts Q2 Forecast To 3.9% - Goldman, it would appear, are desperate to not be forced to admit they are wrong once again. On the heels of their dramatic and humiliating swing from expectations of a +3.0% Q1 GDP growth rate at the start of the year to a current -0.6% expectation, the hockey-stick-believers are out with their latest piece of guesswork explaining how growth will explode to 3.9% in Q2 (a full percentage point higher than their previous estimate).The platform for this v-shaped recovery - "consumer spending will probably grow strongly, while the housing market should gradually improve." So 'probably' and 'should' it is then.

March Wholesale Inventories Surge In Boon To Negative Q1 GDP, Bust To Q2 GDP Forecasts - Wall Street has a problem. In all their excitement about how terrible Q1 was - and ths how awesome Q2 and beyond will be - it forget to check in with the firms that were busily stacking inventories in their snow-covered factories around the nation. Wholesale inventories rose 1.1% in March (which is still in Q1 remember) - smshing expectations for the 3rd month in a row (all in Q1 remember) and the 2nd biggest spike in 2 years. Each time we have seen such a spike, the following months saw a notable decrease. Desk chatter is already of a 0.3% boost to Q1 GDP and a 0.2% cut to Q2 GDP - just as hope was getting going once again.

BofA Revises Long-Term GDP Forecast, Sees No US Recession During Next Decade - In what should be the biggest joke of the day, Bank of America has just released its GDP forecast not for the next several quarter, but making a mockery of the IMF's 2022 Greek GDP forecast, it predicts US growth for the next decade! The punchline: after expecting a surge in growth to 3.4% in 2016, the bailed out bank tapers off its forecast which evens off at 2.2%... some time in 2025. And throughout this period its crack economist team headed by Ethan Harris anticipates precisely.... zero recessions. Indeed, in what will be a first time in history, the US is expected to grow for 16 consecutive years since its last official, NBER-defined recession (which "ended" in the summer of 2009) without entering a recession.

Yield Spread Not Confirming GDP Growth Story - The domestic economic growth story took a beating in the first quarter of this year with an initial estimate of just a 0.1% annualized growth rate. This smidgen of a growth rate was quickly blamed on the "winter weather" that occurred, ironically, during the winter. Recently received economic data for the first quarter now suggests the growth rate was likely negative. The good news is that the weakness in Q1 will likely lead to another "inventory restocking" bounce in Q2 just as we have witnessed in each year since the financial crisis. To wit: "With that inventory restocking cycle now complete, the current "Day After Tomorrow" syndrome will likely lead to another rundown/recovery cycle in the economy. The economic drag caused once again by "Mother Nature" combined with the impact from the onset of the Affordable Care Act is likely to keep economic growth suppressed below expectations once again this year." Economic data for April already suggests that this "restocking" cycle is underway. Production is up, but employment demands remain suppressed. This is because business owners are not producing for an increased surge in demand generated by a rapidly strengthening recovery, but rather just replacing drawn down inventories. This was clearly witnessed in the most recent employment report which showed hours worked increasing, but wages remained flat. This data all suggests that while we will likely see a "pop" in economic activity in the second quarter, it will likely not be more than that. The reason I say this is simply because of the following chart. One of the key indicators for economic growth, or lack thereof, is the direction of interest rates. When economic activity is truly rising, the demands for credit rise also. The chart above is the spread, or the difference, between the 30-year Treasury and the 10-year Treasury bond rates. When this spread is rising it corresponds with stronger demand for credit and rising economic growth. When the spread falls, it is more coincident with economic weakness.

Can the U.S. Rebalance without Raising Inequality? - Last week’s estimate of an anemic U.S. GDP first-quarter growth rate of 0.1% will be revised. Moreover, the good news regarding job growth in April suggests that the U.S. economy is expanding at a quicker pace in the second quarter. But a closer look at the first quarter data reveals a disturbing drop in investment and net exports that does not bode well for a reorientation of the U.S. economy. The rise in economic activity was entirely due to a rise in consumption expenditures, which rose at annual rate of 2.04%. Gross private domestic investment expenditures, on the other hand, fell. Private nonresidential investment expenditures totaled $2.091 trillion, slightly down from $2.096 in the last quarter of 2013. Moreover, spending on new plants and equipment, when adjusted by GDP, reflects a continuation of a slow cyclical rise after the global financial crisis, with no sign of any acceleration: An investment “dearth” (or “drought’) is not unique to the U.S. Antonio Fatas has shown that investment expenditures as a share of GDP have fallen in the advanced economies.   Restricted spending on new plants and equipment has been blamed for continuing low growth rates in these countries, presaging a new period of “secular stagnation.” Stephen Roach, former chief economist at Morgan Stanley and currently a Senior Fellow at Yale University’s Jackson Institute, has another concern. In his recent book, Unbalanced: The Codependency of America and China, he writes about the breakdown of the pre-crisis growth models in the two countries. China’s rapid expansion was based on investment and exports, backed by high savings rates. In the U.S., on the other hand, consumption expenditures, financed in part by borrowing against rising home values, were the basis of the economy’s growth. The flows of goods and capital between the two countries established a pattern of co-dependency between them. But the crisis revealed the weaknesses of both patterns of spending, and the two countries need to rebalance and reorient their economies.

Postal Service Loses Almost $2 Billion -  The United States Postal Service netted a loss of $1.9 billion in the second quarter of its 2014 fiscal year, it said Friday. Despite cost-cutting and recent delivery deals with Amazon, the Postal Service faces significant challenges as first-class mail and other sources of revenue decline. The agency owes close to a $100 billion in benefit payments to its workers, the New York Times reports. But the Postal Service says it has other major problems it needs to correct for it to stay afloat in the future. In March, Jeffrey C. Williamson, the Postal Service’s chief human resources officer, testified before a congressional committee and said it could not return to profitability without comprehensive reform legislation. Bills are pending in the House and Senate. “Some comments in recent news reports suggest that all we need from Congress is help with restructuring our retiree health benefit plan,”  “Nothing can be further from the truth. Our liabilities exceed our assets by $42 billion and we have a need for more than $10 billion to invest in new delivery vehicles, package sortation equipment, and other deferred investments.“We haven’t been making the retiree health benefit prefunding payments because we can’t,” Corbett added. “If legislation reduced the required retiree health benefit prefunding payment, it doesn’t provide us with any more cash to pay down our debt or put much needed capital into our business. Only comprehensive postal legislation that includes a smarter delivery schedule, greater control over our personnel and benefit costs, and more flexibility in pricing and products will provide the necessary cash flows.”

Three Charts on Secular Stagnation - Paul Krugman - Secular stagnation is the proposition that periods like the last five-plus years, when even zero policy interest rates aren’t enough to restore full employment, are going to be much more common in the future than in the past — that the liquidity trap is becoming the new normal. Why might we think that?  One answer is simply that this episode has gone on for a long time. Even if the Fed raises rates next year, which is far from certain, at that point we will have spent 7 years — roughly a quarter of the time since we entered a low-inflation era in the 1980s — at the zero lower bound. That’s vastly more than the 5 percent or less probability Fed economists used to consider reasonable for such events. Beyond that, it does look as if it was getting steadily harder to get monetary traction even before the 2008 crisis. Here’s the Fed funds rate minus core inflation, averaged over business cycles (peak to peak; I treat the double-dip recession of the early 80s as one cycle):  And this was true even though there was clearly unsustainable debt growth, especially during the Bush-era cycle.  The point is that even if deleveraging comes to an end, even stabilizing household debt relative to GDP would involve spending almost 4 percent of GDP less than during the 2001-7 business cycle. Finally, the growth of potential output is very likely to be much slower in the future than in the past, if only because of demography: Suppose that potential growth is one percentage point slower, and that the capital-output ratio is 3. In that case, slowing potential growth would, other things being equal, reduce investment demand by 3 percent of GDP.So if you take the end of the credit boom and the slowing of potential growth together, we have something like a 7 percent of GDP anti-stimulus relative to the 2001-7 business cycle — a business cycle already characterized by low real rates and a close brush with the liquidity trap.

Now That’s Rich, by Paul Krugman - Institutional Investor’s latest “rich list” in its Alpha magazine, its survey of the 25 highest-paid hedge fund managers, is out — and it turns out that these guys make a lot of money. Surprise!Yet before we dismiss the report as nothing new, let’s think about what it means that these 25 men (yes, they’re all men) made a combined $21 billion in 2013. In particular, let’s think about how their good fortune refutes several popular myths about income inequality in America. First, modern inequality isn’t about graduates. It’s about oligarchs. Apologists for soaring inequality almost always try to disguise the gigantic incomes of the truly rich by hiding them in a crowd of the merely affluent. Instead of talking about the 1 percent or the 0.1 percent, they talk about the rising incomes of college graduates, or maybe the top 5 percent. The goal of this misdirection is to soften the picture, to make it seem as if we’re talking about ordinary white-collar professionals who get ahead through education and hard work. But many Americans are well-educated and work hard. For example, schoolteachers. Yet they don’t get the big bucks. Last year, those 25 hedge fund managers made more than twice as much as all the kindergarten teachers in America combined. And, no, it wasn’t always thus: The vast gulf that now exists between the upper-middle-class and the truly rich didn’t emerge until the Reagan years. Second, ignore the rhetoric about “job creators” and all that. Conservatives want you to believe that the big rewards in modern America go to innovators and entrepreneurs, people who build businesses and push technology forward. But that’s not what those hedge fund managers do for a living; they’re in the business of financial speculation..

U.S. could lose $3 billion as budget forces fewer tax audits -IRS chief (Reuters) - The U.S. federal government could lose almost $3 billion in revenue during the current fiscal year because budget cuts are forcing the tax-collecting Internal Revenue Service to audit fewer people, the agency's chief said on Wednesday. Testifying before a congressional panel, IRS Commissioner John Koskinen said the IRS will audit 100,000 fewer individuals this year as part of congressionally mandated cuts to the tax agency's budget. Audits of high-wealth individuals, businesses and partnerships will also decline, he said. "This fiscal year, the IRS's key enforcement programs will operate well below historical levels," said Koskinen, who was speaking before a House of Representatives subcommittee about the tax season that ended on April 15. "We estimate that the government will lose almost $3 billion in revenues as a result," Koskinen said. true Congress in January cut the IRS's budget by $526 million, or 4 percent, to $11.9 billion for the current fiscal year. In 2013, total IRS audits fell by 5 percent from 2012 to reach the lowest level since 2008.

The Tax Extenders: Yes, Virginia, They Really Are Tax Cuts -- The other day, the House Ways & Means Committee voted to cut taxes for certain businesses by $310 billion. Washington, being Washington, is now in the midst of a partisan debate over whether this is in fact a tax cut or, conversely, whether failing to cut those business levies would be a tax increase.  This really isn’t complicated. The Ways & Means bill is a tax cut. And if it is not offset by other tax hikes or spending increases, it would raise the federal deficit by $310 billion over the next 10 years. At issue, of course, are some of the 50+ targeted tax subsidies that have been on the books for many years but expired last December.  The operative word here is “expired.” These provisions have come to be known around the Capitol as the “extenders.”  This is because Congress has a long and ignominious history of passing these as temporary tax cuts, knowing full well that it will then repeatedly extend them for a year or two at a time. Somehow, they seem to operate under a different set of rules than most laws. While Congress argues for months over whether or not to offset the costs of some bills (extending certain unemployment benefits, for example), pols seem happy to maintain the perpetual motion machine of the tax extenders without worrying about their cost.Sometimes, lawmakers have found offsetting tax hikes to pay for these cuts. Often they have not. The Ways & Means bill, which would make six of the now-expired provisions permanent, does not trouble itself with offsets. Thus, the measure would add the aforesaid $310 billion to the deficit over the next 10 years.Similarly, the Senate Finance Committee has voted to restore all of the expired provisions through 2015—and it hasn’t paid for them either.

U.S. Firms With Irish Addresses Get Tax Breaks Derided as ‘Blarney’ -- Randall Hogan chairs the Federal Reserve Bank of Minneapolis. Sandy Cutler ran the Greater Cleveland Partnership. Tony Petrello donated $5 million to the Texas Children’s Hospital.  They’re all chief executive officers who have given back to their communities. They oversee thousands of American workers. And they run companies that have opted out of the U.S. tax system.  The technique these companies use to lower their tax bills -- shifting legal addresses to low-tax Switzerland, Ireland, and Bermuda -- was in the spotlight last week. Pfizer Inc., the largest U.S. drugmaker, said it’s seeking a British address, a move that might save more than $1 billion a year in U.S. taxes.  Pfizer is the biggest company yet to follow a growing trend. At least 15 publicly traded U.S. companies have taken steps to reincorporate abroad in the past two years. Most of their CEOs didn’t leave. Just the tax bills did.

The State of the Deep State — The Monster in America’s Closet -- Kunstler  - We’ve been hearing a lot about the so-called Deep State lately. What to make of this shadowy monster? Some observers link it to the paranoid fantasy called the New World Order, a staple of political talk radio (and a hobgoblin I don’t believe in). In popular movies such as the Jason Bourne epics and Mission Impossible, the Deep State launches hyper-complex schemes that work flawlessly and never fail. That is exactly why they have such high entertainment appeal. Viewers are thrilled by the precision, by the conceit of seeming infallibility. The Deep State definitely exists; it just doesn’t work the way it is depicted in the movies.  I like to say that I’m allergic to conspiracy theories because human beings are generally too inept to carry out schemes at the grand scale, as well as being poor secret-keepers. Insider knowledge is almost always swapped around, even in secretive organizations, often recklessly so, because doling it out confers status, tactical advantage, and sometimes money for the doler-outer. But the Deep State isn’t a secret. It operates in plain sight.

LEAKED: Docs obtained by Pando show how a Wall Street giant is guaranteed huge fees from taxpayers on risky pension investments --  When you think of the term “public pension fund,” you probably imagine hyper-cautious investment strategies kept in check by no-nonsense fiduciary laws. But you probably shouldn’t.  An increasing number of those pension funds are being stealthily diverted into high-fee, high-risk “alternative investments” that deliver spectacular rewards for the Wall Street firms paid to manage them – but not such great returns for pensioners and taxpayers. Citing data from the National Association of State Retirement Administrators, Al Jazeera America recently reported that “the average portion of pension dollars devoted to real estate and alternative investments has more than tripled over the last 12 years, growing from 7 percent to around 22 percent today.” With public pensions now reporting $3 trillion in total assets, that’s up to $660 billion of public money in these high-fee, high-risk investments. And yet… despite the fact that they deal with the expenditure of taxpayer money, the agreements between public pension systems and alternative investment firms are almost entirely secret.

SEC Finds High Rate of Fee, Expense Violations at Private-Equity Firms - A top Securities and Exchange Commission official said Tuesday the agency's recent examinations of private-equity firms had found more than half allocated expenses and collected fees inappropriately, and in some cases, illegally. Drew Bowden, the director of the SEC's Office of Compliance Inspections and Examinations, said the agency has identified "violations of law or material weaknesses in controls" in more than 50% of the 112 examinations where it looked at fees and expenses. The violations include fees and expenses directly levied on fund investors and those charged by private-equity firms to the companies they own. "This is a remarkable statistic," Mr. Bowden said. "For private-equity firms to be cited for deficiencies involving their treatment of fees and expense more than half the time we look at the area is significant." Mr. Bowden's comments at the Private Fund Compliance Forum 2014 in New York come as investors—including pension funds, wealthy individuals and endowments—have become more aggressive in seeking to lower the fees they pay to invest in private-equity funds. Such funds deploy investor cash in a number of different ways, including bread-and-butter corporate buyouts, distressed debt and real estate, to name a few.

Too Big to Jail Continues: DOJ May Charge Two Banks with Criminal Acts, But Not Hold Them Criminally Accountable - In a recent breathlessly written "we have the inside scoop" article, The New York Times would have you believe that the Department of Justice (DOJ) is finally getting serious about filing criminal charges against a couple of banks. Technically, the Times may prove to be right, but on a practical level, the actions it is predicting would be more of the same kid-glove treatment of too-big-to-fail banks we’ve seen in the past.  Attorney General Holder has officially stated his concern that prosecuting the largest banks would have adverse affects on our economy. As The New York Times reports about the possibility of looming criminal charges against two foreign banks (emphasis on foreign - Credit Suisse and BNP Paribas, not US):  . A lack of criminal prosecutions of banks and their leaders fueled a public outcry over the perception that Wall Street giants are “too big to jail.” Addressing those concerns, prosecutors in Washington and New York have met with regulators about how to criminally punish banks without putting them out of business and damaging the economy, interviews with lawyers and records reviewed by The New York Times show. That last paragraph is devastatingly revealing. The Department of Justice might make an agreement with banks in which they would plead guilty to criminal activity without, it appears, holding them criminally responsible beyond fines and perhaps some temporary restrictions.

No Evidence Justice Department Will Prosecute U.S. Banks Responsible for Financial Crisis - Yves Smith  Bill Black is in particularly fine form in this Real News Network video. Black recounts the various excuses for not prosecuting the parties that blew up the global economy, and gives a new one from the Justice Department: that regulators told them that yanking bank charters would blow up the global economy. Of course that’s a straw man; Black and others who’ve been serious about prosecution have stressed the importance of targeting individuals.  And we continue to get far too many apologies for the lack of prosecutions. Jesse Eisenger, for instance, argued last week that the Justice Department had been too bold and successful in going after Andersen as part of the Enron bankruptcy; it led to a “counteroffensive” by the corporate bar. But this again was the prosecution of companies; Eisenger fails to offer convincing explanations as to the failure to go after individuals successfully. Real prosecutors like Eliot Spitzer and Neil Barofsky disagree vehemently with the “it’s all too hard/Corporate America is too well defended” palaver. As those who saw the movie Inside Job may recall, Spitzer laid out a simple way to go after Wall Street: hit firm employees with charging drugs and prostitutes to research budgets (this practice is so common that it’s even discussed in thinly disguised personal memoirs like ex Goldmanite CDO salesman Tetsuya Ishikawa’s How I Caused the Credit Crunch.  In case you’ve got friends and colleagues who’d like better talking points as to why the banks (or more accurately banksters) got away with murder, this segment is a great place to start.

A Mangled Case of Justice on Wall Street --Segarra was a bank examiner at the Federal Reserve Bank of New York, a key regulator of Wall Street banks. She charged in her lawsuit that when she turned in a negative assessment of Goldman Sachs, she was bullied and intimidated by colleagues at the New York Fed to change her findings. When she refused, she was terminated from her job in retaliation and escorted from the Fed premises, according to her lawsuit. The case was assigned to Judge Ronnie Abrams, an Obama appointee, the daughter of constitutional law expert, Floyd Abrams, and sister to Dan Abrams, the well known legal affairs commentator on television. Segarra also had a powerful whistleblower protection law on her side, designed specifically to include a bank examiner such as herself working for a Federal agency overseeing banks. The law is known as the Federal Deposit Insurance Act and codified as 12 U.S.C. 1831j.  It was enacted to prevent the intimidation, discrimination or firing of employees involved in examining the safety and soundness of the U.S. financial system because they had found wrongdoing and reported it.

Wolf Richter: Hidden Leverage Threatens To Blow Up the Markets  - We don’t know what hedge fund manager Steven Cohen will do with the money he’s borrowing from Goldman Sachs’s GS Private Bank. We don’t even know how much he’s borrowing. But it’s a lot, given that the personal loan is backed by his collection of impressionist, modern, and contemporary art estimated to be worth $1 billion. The only reason we know about the loan at all is because Bloomberg dug up a notice Goldman filed with the Connecticut Secretary of the State, claiming he’d pledged “certain items of fine art” as part of a security agreement. Cohen made $2.4 billion in 2013, according to Institutional Investor’s Alpha List of hedge fund managers, in second place, behind David Tepper ($3.5 billion) and ahead of John Paulson ($2.3 billion). Wouldn’t that be enough without having to borrow more? And what might he be doing with all this borrowed moolah? He won’t need that much to make ends meet when his electricity bill comes due. In the rarefied air where these art loans take place, they have unique advantages: clients get to keep their art on the wall, and interest rates are about 2.5% – thanks to the Fed’s indefatigable efforts to come up with policies that enrich this very class of success stories. This is where the Fed’s otherwise illusory “wealth effect” is actually effective.  Cheap leverage, the holy grail these days. It’s the driver behind the asset bubbles all around. It’ll goose otherwise minuscule returns. He might invest this borrowed money in his fund, which might for example buy Collateralized Loan Obligations. Banks that carry them on their books have to dump them to satisfy new regulations. But prices have dropped, and so banks are lending hedge funds cheap money so that they buy these CLOs. Some banks are offering to lend as much as nine times the amount that the hedge fund itself would invest. More massive and cheap leverage. So Cohen, using these multiple layers of leverage, might earn a return of 8% a year on his art loan that costs him 2.5% a year. Multiply that out to a billion, and it’s a money machine. That would be on top of the art itself that has seen phenomenal increases in value under the Fed’s money-printing binge. Absurd? Sure, but this sort of absurdity, an outgrowth of the biggest credit bubble in history, has become the lifeblood of the US economy and its lopsided income distribution.

At Bank of America, a $4 Billion Wet Blanket on the Party -  If you’re a bank executive, it’s never going to be easy to tell your shareholders: Oops, we made a $4 billion mistake!But the disclosure last week by Bank of America that it had $4 billion less in regulatory capital than it thought came at a particularly awkward time, just days before its annual shareholder meeting, scheduled for this Wednesday in Charlotte, N.C.Brian T. Moynihan, the company’s chief executive, must not be happy. For the first time in years, the annual meeting was expected to be upbeat. The bank’s stock had rallied and regulators had recently approved the company’s plan to increase its dividend and buy back billions of dollars of shares. Best of all, its never-ending mortgage woes seemed to be winding down.But the billion-dollar boo-boo makes a victory lap premature. Instead, the bank’s top management and 13 outside directors may well face upset owners wondering how so many people inside the company could have overlooked an accounting error that grew — and grew — over five years. Yes, the size of the mistake may be considered trivial when judged against Bank of America’s $2 trillion balance sheet. And the bungled accounting didn’t affect the bank’s earnings. But the failure to account properly for losses still confounds. The mistake was in a portfolio of debt securities acquired by the bank when it bought Merrill Lynch all the way back in 2008. And the bank’s capital position, overstated by the error, is crucial to its ability to raise its dividend or to conduct other activities that could benefit shareholders. Indeed, the bank had to put off the planned dividend increase and share buyback after disclosing the mistake.

JPMorgan Chase to Porn Stars: You’re Not Welcome - The adult movie business in the United States, as NBC News reported earlier this year, is grappling with tough times "because of piracy and an abundance of free content on the Internet." CNBC noted in March: Income in the adult film industry is down by 50 percent from about a decade ago due to shrinking profits. Only a few performers are lucky enough to be on the A-list. . . . The rest, on average, earn a yearly salary of just around $50,000--a few thousand dollars shy of the national median household income--and, of course, have no pension plan or 401(k) plan. Now, it's just gotten a whole lot harder for some of those performers to find a bank to park their cash. As if to add further financial insult to an already injured and consolidating industry, the leading adult trade publications in Southern California, AVN and XBIZ, reported in late April that JPMorgan Chase is sending letters to performers terminating their bank accounts. According to VICE News, word is "surfacing that shows the US Department of Justice may be strong-arming banks into banning porn stars" as part of Operation Choke Point. As The Huffington Post reported, that operation "attempts to curb money laundering by scrutinizing banks and payment processors that facilitate transactions with illegal businesses -- petty fraudsters running payday lending scams, sham telemarketing operations and other shady groups."

Hoenig: Wall Street Banks “Excessively Leveraged” at 22 to 1 Ratios - This past Wednesday, Thomas Hoenig, the Vice Chairman of the FDIC and former President of the Federal Reserve Bank of Kansas City, gave a presentation to the Boston Economic Club warning that Dodd-Frank has not put an end to taxpayer bailouts. Hoenig explained why in plain-spoken language the average person can absorb. Hoenig has consistently shown the courage of his convictions in calling for breaking up the biggest Wall Street banks through the restoration of the Glass-Steagall Act and warning that the complexity, leverage and interconnectedness of Wall Street banks that brought on the 2008 financial collapse has not ended. In his Wednesday talk, Hoenig makes the following key points:

  • Mega banks are now “larger and more complex than they were pre-crisis”;
  • “The eight largest banking firms have assets that are the equivalent to 65 percent of GDP”;
  • “The average notional value of derivatives for the three largest U.S. banking firms at year-end 2013 exceeded $60 trillion, a 30 percent increase over their level at the start of the crisis”;
  • The largest banks are “excessively leveraged with ratios, on average, of nearly 22 to 1”;
  • Taxpayer bailouts have not ended under Title II of Dodd-Frank and, most likely, not under Title I as well;

Fed Official Seeks Radical Change in Bank Regulation - The Swiss city of Basel is to central bankers what the Vatican is to Roman Catholics. But that didn’t stop Federal Reserve Governor Daniel Tarullo from slamming the Basel approach to bank regulation in a speech today in Chicago. According to prepared remarks released by the Fed, Tarullo said the standard designed by the Basel Committee on Banking Supervision creates “manifold risks of gaming, mistake, and monitoring difficulty.” The Basel standard, he said, “contributes little to market understanding of large banks’ balance sheets and thus fails to strengthen market discipline.” He even said its “relatively short, backward-looking basis for generating risk weights makes the resulting capital standards likely to be excessively pro-cyclical and insufficiently sensitive to tail risk.” To be sure, his damnation of Basel wasn’t complete. He never said it caused high blood pressure or coastal erosion. But he did say that the Basel “approach—for all its complexity and expense—does not do a very good job of advancing the financial stability and macroprudential aims of prudential regulation.” Speaking at a Federal Reserve Bank of Chicago conference, he summed up by saying, “we should consider discarding” it, which really means “we should discard it.”

Nobel Prize winning economist Eugene Fama: Crank up bank capital levels to 25% - The US has suffered 14 major banking crises over the past two centuries, as documented by Charles Calomiris and Stephen Haber in their new book, “Fragile by Design: The Political Origins of Banking Crises and Scarce Credit.” (None in Canada, by the way.) One could reasonably assume US economic growth would have been a least a smidge better without all those other crises. In a recent Wall Street Journal op-ed, Calomiris and coauthor Allan Meltzer note that at the start of the Great Depression, the big New York City banks ”all maintained more than 15% of their assets in equity” and none went bust. Likewise, “losses suffered by major banks in the recent crisis would not have wiped out their equity if it had been equal to 15% of their assets.”Wouldn’t a 15% leverage ratio hurt bank lending and economic growth? Consider: First you have to calculate whether it would hurt economic growth more than a continuation of America’s serial financial crises. Second, it’s a pernicious myth that debt is somehow “more expensive” than equity capital. The more stock a bank issues, the less risky the bank becomes, and the lower the return shareholders demand. Don’t banks know this? Look, banks are responding to incentives. Bank debt operates on unequal footing thanks to Washington’s “too big to fail” backstop. University of Chicago economist John Cochrane explains that without government guarantees, “a bank with 3% capital would have to offer very high interest rates—rates that would make equity look cheap.” Like researchers Anat Admati and Martin Hellwig in their book “The Bankers’ New Clothes,” Cochrane endorses dramatically higher capital levels. So should policymakers if they want to avoid another century of financial shocks.

Consumer Group Finds 'Big Data' Doesn't Yield Better Loans - They say the data enable them to offer loans that are more affordable than payday loans, where annual interest rates average roughly 400%, according to the Pew Charitable Trusts. Now, a consumer group has looked at the loans these startups offer—and concluded that big data doesn't make a big difference.The National Consumer Law Center found that the loans based on underwriting from LendUp, ZestFinance Inc., Think Finance Inc. and other big-data startups offered effective annual interest rates of 134% to 749%. Think Finance is both a lender and a data-cruncher; LendUp is a lender; ZestFinance crunches data for other lenders. LendUp and ZestFinance said they have made tens of thousands of loans in the past few years. Persis Yu, an attorney for the center and author of the report, examined interest rates, loans terms and fees published on the companies' websites, compared to payday-loan companies'.  "The big-data algorithms do not appear to lead to the development of better loan products," she said.

Unofficial Problem Bank list declines to 509 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for May 2, 2014. With four removals this week, the Unofficial Problem Bank List fell to 509 institutions with assets of $163.3 billion. A year ago, the list held 773 institutions with assets of $284.9 billion. Actions were terminated against Ocean Bank, Miami, FL ($3.3 billion); TruPoint Bank, Grundy, VA ($441 million); and Liberty Bank, South San Francisco, CA ($219 million). First Federal Savings and Loan Association of Hammond, Hammond, IN ($40 million) found its way off the list through an unassisted merger. Next week should be light in terms of changes to the list as we will not receive an update from the OCC for another two weeks.

Fannie and Freddie Results in Q1: REO inventory declines, "Lower demand for foreclosed properties" - From Fannie Mae:

• Fannie Mae reported net income of $5.3 billion, the company’s ninth consecutive quarterly profit, and comprehensive income of $5.7 billion for the first quarter of 2014.
• Fannie Mae expects to pay Treasury $5.7 billion in dividends in June 2014. With the expected June dividend payment, Fannie Mae will have paid a total of $126.8 billion in dividends to Treasury in comparison to $116.1 billion in draw requests since 2008. Dividend payments do not offset prior Treasury draws.
The continued decrease in the number of our seriously delinquent single-family loans, as well as the slower pace of completed foreclosures we are experiencing due to lengthy foreclosure timelines in a number of states, have resulted in a reduction in the number of REO acquisitions, while the lower demand for foreclosed properties has resulted in fewer REO dispositions in the first quarter of 2014 as compared with the first quarter of 2013.

From Freddie Mac:

• First quarter 2014 net income was $4.0 billion – the company’s tenth consecutive quarter of positive earnings, compared to $8.6 billion in the fourth quarter of 2013
• Recent level of earnings is not sustainable over the long term, and earnings may be volatile from period to period
Treasury Draws and Dividend Payments at March 31, 2014

In 1Q14, REO inventory declined primarily due to lower single-family foreclosure activity as a result of Freddie Mac’s loss mitigation efforts and a declining amount of delinquent loans

New Foreclosures Fall to Lowest Level Since 2006 - Amid renewed concern about weak housing demand, there’s this bright spot: the number of mortgage on which lenders initiated foreclosure in March fell to the lowest level in 7½ years, according to a new report. Banks initiated foreclosure on 88,000 properties in March, down more than 27% from a year ago, and well below the high of more than 316,000 in March 2009, according to data from Black Knight Financial Services, a mortgage research firm. Foreclosures should continue to trend down because the share of mortgages that are behind on their payments is also declining, according to Black Knight. Around 2.1% of all loans were in some stage of foreclosure in March, the lowest level since late 2008, and another 5.5% of all borrowers were 30 days or more past due on their loans but not yet in foreclosure, the lowest since late 2007. Both of those are still well above pre-crisis levels but they are down sharply from a few years ago. The report also found that one in 10 borrowers is underwater, or owes more on their mortgage than their home is worth. That’s still high, but consider: one in three borrowers was underwater at this point four years ago. The share of underwater borrowers has dropped, first as more homes went through foreclosure, but more recently, as home prices have rebounded strongly. More than half of all loans in the foreclosure process haven’t made any payments in at least two years. Foreclosure processes have taken longer in states where banks must go to court to proceed with foreclosure. Mortgage companies have struggled in certain states to provide the proper paperwork, or to meet new court requirements, to process foreclosures. On average, a loan that completed foreclosure in March had been delinquent for 955 days.

Mortgage Monitor: Mortgage delinquency rate in March lowest since October 2007, "Only One in 10 American Borrowers Underwater" - Black Knight Financial Services (BKFS, formerly the LPS Data & Analytics division) released their Mortgage Monitor report for March today. According to BKFS, 5.52% of mortgages were delinquent in March, down from 5.97% in February. BKFS reports that 2.13% of mortgages were in the foreclosure process, down from 3.38% in March 2013.This gives a total of 7.65% delinquent or in foreclosure. It breaks down as:
• 1,571,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,199,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,070,000 loans in foreclosure process.
For a total of ​​3,840,000 loans delinquent or in foreclosure in March. This is down from 4,997,000 in March 2013.This graph from BKFS shows percent of loans delinquent and in the foreclosure process over time. Delinquencies and foreclosures are moving down - and might be back to normal levels in a couple of years. The second graph from BKFS shows the percent of borrowers with negative equity. From Black Knight: The data showed that, as home prices have risen over the past two years and many distressed loans have worked their way through the system, the percentage of Americans in negative equity positions on their mortgage has declined considerably. Meanwhile, those loans already in the foreclosure process have been aging substantially. According to Kostya Gradushy, Black Knight’s manager of Loan Data and Customer Analytics, both data trends point to a healthier housing market. “Two years of relatively consecutive home price increases and a general decline in the number of distressed loans have contributed to a decreasing number of underwater borrowers,” said Gradushy. “Looking at current combined loan-to-value (CLTV), we see that while four years ago 34 percent of borrowers were in negative equity positions, today that number has dropped to just about 10 percent of active mortgage loans. While negative equity levels have declined for both judicial vs. non-judicial foreclosure states from the peak of the crisis, non-judicial states are now at just under eight percent, as compared to 13.4 percent in their judicial counterparts.

DataQuick: California Foreclosure Starts Hover Near 8-Year Low -- This was released in late April by DataQuick: California Foreclosure Starts Hover Near 8-Year Low Lenders and their servicers recorded 19,215 Notices of Default (NoDs) on California house and condo owners during this year's first quarter, which runs January through March. That was up 6.0 percent from 18,120 NoDs in the prior quarter, which had the lowest NoD tally since fourth-quarter 2005, and was up 3.5 percent from 18,568 NoDs in first-quarter last year, according to San Diego-based DataQuick. The trough for DataQuick's NoD statistics, which begin in 1992, was 12,417 in third-quarter 2004, while the peak was 135,431 in first-quarter 2009. Each NoD represents a "foreclosure start" because the filing of the Notice of Default begins the formal foreclosure process. The past three quarters, along with the first quarter of 2013, have seen the lowest NoD totals since late 2005 and early 2006. Although this year's first quarter was the first to log a year-over-year increase in default filings since fourth quarter 2009, that gain can be attributed to an anomaly early in first-quarter 2013: There was a short-lived plunge in NoD filings in January and February last year as new state laws - known as the "Homeowner Bill of Rights" - took effect, causing lenders and services to pause and adjust. On a year-over-year basis, NoD filings have only increased in January this year, rising 63.9 percent, while February and March NoD levels fell 2.8 percent and 22.5 percent, respectively, from a year earlier. This graph shows the number of Notices of Default (NoD) filed in California each year.   2014 is in red (Q1 times 4). Last year was the lowest year for foreclosure starts since 2005, and 2013 was also below the levels in 1997 through 2000 when prices were rising following the much smaller late '80s housing bubble / early '90s bust in California.

Default Mode: How Ocwen Skirts California’s Mortgage Laws -- Lost documents. Incomplete and confusing information. Mysterious fees.  Payments received but not applied. Homeowners waiting for a loan modification and suddenly placed in foreclosure. A nightmare of uncertainty, frustration and fear. These incidents, described to me by numerous homeowners, mortgage counselors and defense lawyers, were supposed to be a thing of the past in California. After revelations of fraud and abuse throughout the mortgage business, including tens of billions of dollars in corporate penalties, state Attorney General Kamala Harris pushed through the 2012 California Homeowner Bill of Rights (HBOR), designed to standardize conduct by mortgage servicers – those companies that manage day-to-day operations on mortgages by collecting monthly payments and making decisions when homeowners go into default and seek help. Yet one company allegedly committed all these HBOR violations: Ocwen, the nation’s fourth-largest mortgage servicer. According to the complaints, Ocwen (“New Co.” spelled backwards) either skirts around the edges of California law or simply ignores it, causing headaches for homeowners – and potentially illegal foreclosures. “Ocwen is one of the worst servicers in the state,”

Blackstone Unit Sued Over Slum-Like Condition of Single Family Home Rental - Yves Smith  The Los Angeles Times reports tonight that a local couple has sued the private equity giant’s single family home rental unit, Invitation Homes, over the appalling condition of a home it leased and the further damage they suffered. Recall that Blackstone is biggest player in single family home rentals, now with 44,000 houses in its hands. And this is hardly the first time it’s been accused of renting homes in appalling shape and leaving tenants to fend for themselves. Some might argue that as the largest operator, Blackstone will naturally get more complaints than its competitors simply by virtue of its size. But the speed with which horror stories have piled up suggest that Blackstone using its market position to lead a race to the bottom in terms of doing as little as it can as a landlord beyond making sure the rent checks arrive on time. For instance, we discussed in April how activists in Chicago had found Blackstone to be a serial tenant abuser: The article, Game of Homes, makes for good one-stop shopping if you want to get friends and colleagues up to speed on this topic. For NC readers, the first two-thirds of the article covers familiar terrain. Here are the sections that discuss how Blackstone, which is using “Invitation Homes” as its brand for its single-family rentals, is trying to evade its duties as landlord:

What's Right with Housing? - There have been quite a few hand-wringing articles lately discussing the problems with housing. The first mistake these writers make is they are asking the wrong question. Of course housing is lagging the recovery because of the residual effects of the housing bust and financial crisis (this lag was predicted on this blog and elsewhere for years - it should not be a surprise).   The correct question is: What's right with housing?  And there is plenty.
1) Existing home sales were down 7.5% year-over-year in March.  Wait, isn't that bad news?  Nope - not if the decline is related to fewer distressed sales - and it is.  (fewer foreclosures and short sales).
2) Mortgage delinquencies are down sharply.  See: Fannie Mae and Freddie Mac: Mortgage Serious Delinquency rate declined in March and Mortgage Monitor: Mortgage delinquency rate in March lowest since October 2007, "Only One in 10 American Borrowers Underwater"
3) Mortgage credit is tight. Hey, isn't that bad news? Nope.  There is only one way to go ...
4) New home sales are up significantly from the bottom, but are still historically very low. There really is no where to go but up. 

5) The percent of borrowers with negative equity is declining sharply.  See: CoreLogic: 4 Million Residential Properties Returned to Positive Equity in 2013 and Zillow: Negative Equity declines further in Q4 2013
6)  The impact from rising mortgage rates is mostly behind us.  Economists at Goldman Sachs have found "the effect of monetary policy shocks on [building] permits persists for 3-4 quarters".  Rates increased from around 3.5% in May 2013 to 4.4% in July 2013.  Since then rates have moved sideways or down a little - and the "3-4 quarters" is almost over.
7) Existing home inventory is increasing, and house price increases are slowing.

MBA: Refinance Share of Mortgage Applications under 50% for first time since 2009 - For the first time since 2009 there were more purchase mortgage applications than refinance applications last week!From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 5.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 2, 2014. ... The Refinance Index increased 2 percent from the previous week. The seasonally adjusted Purchase Index increased 9 percent from one week earlier to the highest level since January 2014. ...The refinance share of mortgage activity decreased to 49 percent of total applications from 50 percent the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.43 percent, the lowest rates since November 2013, from 4.49 percent, with points decreasing to 0.21 from 0.38 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. The refinance index is down 75% from the levels in May 2013 (one year ago). As expected, with the mortgage rate increases, refinance activity is very low this year. The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index is now down about 18% from a year ago.

US Mortgage Rates Fall To A 7-Month Low ​​ -- One interest rate that most Americans can appreciate is the 30-year fixed mortgage rate.  "At 4.21%, the 30-year fixed-rate mortgage is at its lowest since the week of November 7, 2013," said Freddie Mac in their new weekly report on national mortgage rates. Last week, it averaged 4.29%. A year ago, it was 3.42%   Since the housing market crashed, the Federal Reserve has used extraordinarily easy monetary policy to keep interest rates like mortgage rates low in its effort to bolster the housing market and stimulate the economy.  Lately, various housing-market metrics such as existing-home sales, new-home sales, and mortgage applications have all been flagging. Last week, we learned that the U.S. homeownership rate was at a 19-year low, and some experts think it'll never come back.  "One cautionary note, though, is that readings on housing activity—a sector that has been recovering since 2011—have remained disappointing so far this year and will bear watching ," said Fed Chair Janet Yellen in her testimony to Congress this week. "The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery."

Mortgage Rates Hit Six-Month Low; Not Likely to Rebound -  Mortgage-interest rates have fallen to their lowest level in six months, and may struggle to surpass last fall’s peak by the end of the year. Such a development could be a boon for the housing market slowed by a rise interest-rates that began a year ago. Interest rates on 30-year fixed-rate mortgage averaged 4.21% in the past week, Freddie Mac said Thursday. That’s down from 4.29% in the prior week and the lowest level since the week of November 7. And Freddie Mac Chief Economist Frank Nothaft isn’t expecting a quick rebound. Mortgage rates will “just gradually rise, very slowly” this year, he said Wednesday during an economic forecast event at the U.S. Chamber of Commerce. Mr. Nothaft expects rates to rise to between 4.6% and 4.7% by the end of the year. That gain is much weaker than he forecast in January, when he projected rates to reach 5.1% by the end of the year. The lower forecast reflects weaker economic growth in the first quarter than expected. The slowdown coincided with an easing of home purchases and mortgage demand.

Weekly Update: Housing Tracker Existing Home Inventory up 8.6% year-over-year on May 5th -- Here is another weekly update on housing inventory ... There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer. The Realtor (NAR) data is monthly and released with a lag (the most recent data was for March).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years.This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014. In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year. In 2013 (Blue), inventory increased for most of the year before declining seasonally during the holidays. Inventory in 2013 finished up 2.7% YoY compared to 2012. Inventory in 2014 (Red) is now 8.6% above the same week in 2013. Inventory is still very low - still below the level in 2012 (yellow) when prices started increasing - but this increase in inventory should slow house price increases.

Phoenix Real Estate in April: Sales down 12%, Cash Sales down 33%, Inventory up 49% - This is a key distressed market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):
1) Overall sales in April were down 12% year-over-year and at the lowest level since April 2008.
2) Cash Sales (frequently investors) were down 33%, so investor buying appears to be declining. Non-cash sales were up year-over-year.
3) Active inventory is now increasing rapidly and is up 49% year-over-year - and at the highest level since 2011.
Inventory has clearly bottomed in Phoenix (A major theme for housing last year).   And more inventory (a theme this year) - and less investor buying - suggests price increases should slow sharply in 2014. According to Case-Shiller, Phoenix house prices bottomed in August 2011 (mostly flat for all of 2011), and then increased 23% in 2012, and another 15% in 2013.  Those large increases were probably due to investor buying, low inventory and some bounce back from the steep price declines in 2007 through 2010.  Now, with more inventory, price increases should flatten out in 2014.

CoreLogic: House Prices up 11.1% Year-over-year in March - The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic Reports Home Prices Rise by 11.1 Percent Year Over Year in March Home prices nationwide, including distressed sales, increased 11.1 percent in March 2014 compared to March 2013. This change represents 25 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased 1.4 percent in March 2014 compared to February 2014. Excluding distressed sales, home prices nationally increased 9.5 percent in March 2014 compared to March 2013 and 0.9 percent month over month compared to February 2014. Distressed sales include short sales and real estate owned (REO) transactions.  “Interest rate-disenfranchised potential sellers are adding to the existing shadow inventory, while buyers who can't find what they want to buy are on the sidelines creating a new kind of 'shadow demand.' This supply and demand imbalance continues to drive home prices higher, even though transaction volumes are lower than expected.”This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 1.4% in March, and is up 11.1% over the last year. This index is not seasonally adjusted, so this was a strong month-to-month gain during the "weak" season. The second graph is from CoreLogic. The year-over-year comparison has been positive for twenty five consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit).

Trulia: Asking House Prices up 9.0% year-over-year in April, "smallest year-over-year increase in 11 months" --  From Trulia chief economist Jed Kolko: Yearly Price Gain Smallest in 11 Months, Despite Steady Monthly Rise Nationally, asking prices rose 0.8% month-over-month and 2.8% quarter-over-quarter in April, seasonally adjusted. Those gains are in line with March increases and show that home prices continue to rapidly climb. However, asking prices rose 9.0% year-over-year, which is the smallest year-over-year increase in 11 months. Why are year-over-year price increases slipping despite month-over-month and quarter-over-quarter increases holding steady? One reason is that the biggest price spike during the housing recovery happened between February and April 2013, and the year-over-year change in April 2014 no longer includes those months. Nationally, rents have increased 4.5% year-over-year and are up more than 10% in San Francisco, Oakland, and Denver. In November 2013, year-over-year asking prices were up 12.2%. In December, the year-over-year increase in asking home prices slowed slightly to 11.9%. In January, the year-over-year increase was 11.4%, in February, the increase was 10.4%, in March the increase was 10.0%, and now 9.0%. Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases, but at a slower rate, over the next few months on a seasonally adjusted basis.Note: in the linked article, Kolko also has an interesting discussion on why "construction still lags in housing markets with biggest price rebounds".

"All Is Not Well In The Housing Market" As All Cash Buyers Double In Past Year, Hit Record High - Confirming and continuing a trend we first described a year ago, overnight RealtyTrac reported, as part of its Q1 institutional investor and cash sales report, that the percentage of all-cash buyers has soared in the past year with "42.7% of all U.S. residential property sales in the first quarter were all-cash purchases, up from 37.8% in the previous quarter and up from 19.1% in the first quarter of 2013 to the highest level since RealtyTrac began tracking all-cash purchases in the first quarter of 2011."  Curiously this is happening as institutional investors, think Blackstone, are slowly exiting the market: "Institutional investors — entities that have purchased at least 10 properties in a calendar year — accounted for 5.6 percent of all U.S. residential sales in the first quarter, down from 6.8 percent in the fourth quarter of 2013 and down from 7.0 percent in the first quarter of 2013 to the lowest level since the first quarter of 2012."

Home Price Gains Are Not Boosting Borrowing - While home prices have rebounded strongly over the past two years, there’s little evidence that Americans are borrowing from their homes to extract any of their recovered equity, according to a new report. Borrowers with conventional loans pulled just $6.5 billion out of their homes during the first quarter through cash-out refinancing, down from $6.7 billion during the prior quarter, according to a survey released by Freddie Mac. Cash-out refinancing has been lower only in three quarters since mid-2000, and adjusted for inflation, cash-out refinancing in since 2010 has been near its lowest levels since 1997. One key way that home-price gains boost the economy is that they enable more households to do a “cash-out” refinancing, in which a homeowner refinances and takes out a larger mortgage, pocketing the difference between the old, smaller loan and the new, larger one. Cash-out refinancing surged during the housing bubble as lenders dropped their standards and home prices soared, reaching a high of $84 billion during the second quarter of 2006. Many Americans treated their homes as ATMs, which boosted consumer spending, during the mid-2000s, only to leave a painful pay-back that continues today. Many borrowers that ended up in a position where they owed more than their homes are worth found themselves underwater because they had taken out cash through refinancing. Today, on the other hand, tight lending standards have made it harder for homeowners to take cash out of their homes. Meanwhile, rising interest rates could lead homeowners away from doing a cash-out refinance in the future, especially if they’ve locked in a lower rate over the past two years.

The Share of Retirees with a Mortgage Is Soaring - Retirees are carrying more debt than ever, and a rising chunk of it is the mortgage on the house they live in, new research shows. This not only threatens their retirement lifestyle but also leads to a growing percentage of elders eventually tapping out and filing for personal bankruptcy.The financial crisis plays a big role in this new reality, having forced millions to borrow more and for longer than they expected in order to make ends meet. But also to blame are some dicey consumer practices that came into vogue before the downturn: small down payments, home equity lines of credit to fund basic expenses, and cash-out mortgage refinancing to pay for cars and vacations otherwise out of reach.Americans past the age of 65 have the highest home ownership rate of any group; roughly 80% own their house. But while that rate has remained constant the past decade the share with a mortgage has risen dramatically, according to a report from the Consumer Financial Protection Bureau. Among homeowners 65 and older, 30% had mortgage debt in 2011, vs. just 22% with mortgage debt in 2001, the CFPB found. The trend is more extreme among those 75 or older, where 21.2% had mortgage debt in 2011, vs. just 8.4% a decade earlier. The numbers have come down only marginally since 2011. Meanwhile, the typical amount of retiree mortgage debt has soared 82% to $79,000 from $43,300. Don’t look for the trend to ease much in the years ahead. Other research shows that pre-retirees also are carrying more debt than at any time in history. This will push them to work longer. But it’s unlikely the vast majority of the next generation of retirees will be anywhere near debt free, or even mortgage free, when they call it quits for good.

Why Americans are fleeing the suburbs -- The American dream: a white picket fence and a patch of grass to call your own. In 2002 President Bush declared “owning a home lies at the heart of the American dream,” and wanted, "everybody in America to own their own home.” Twelve years and a housing crisis later, it seems as though that’s no longer the case: Americans are packing up and booking it to the city.  The nation's urban population increased by 12.1% between 2000 and 2010. According to the Census, urban areas accounted for 83% of the U.S. population in 2012. And The Brookings Institute notes that "among the 51 metropolitan areas with more than one million residents, 24 saw their cities grow faster than their suburbs from 2011 to 2012-- that was true of just 8 metro areas from 2000 to 2010." “Most people have been hit really hard by this last recession and are worried about mortgage debt and auto debt, so this is a pocketbook issue at a significant level,”  . The tightening of purse strings is a prevailing issue but there’s more to reurbanization. “If you look at the millennials they grew up with Hurricane Katrina, Deep-water Horizon, a lot of things that were around the environment—it’s a socially conscientious generation and they are interested in driving less and walking more,”

NAHB: Builder Confidence improves year-over-year in the 55+ Housing Market in Q1 -This is a quarterly index from the the National Association of Home Builders (NAHB) and is similar to the overall housing market index (HMI). The NAHB started this index in Q4 2008, so the readings have been very low.  Note that this index is Not Seasonally Adjusted (NSA)  From the NAHB: Single-family 55+ HMI Rises to Highest First Quarter Reading Since 2008 Builder confidence in the single-family 55+ housing market for the first quarter of 2014 is up year over year, according to the National Association of Home Builders’ (NAHB) latest 55+ Housing Market Index (HMI) released today. Compared to the first quarter of 2013, the single-family index increased 4 points to a level of 50, which is the highest first-quarter reading since the inception of the index in 2008 and the 10th consecutive quarter of year over year improvements...Two of the components of the 55+ single-family HMI posted increases from a year ago: present sales rose six points to 52 and expected sales for the next six months climbed nine points to 62. Meanwhile, traffic of prospective buyers held steady at a reading of 41.This graph shows the NAHB 55+ HMI through Q1 2014.  The index was unchanged in Q1 at 50 - however the index is up year-over-year.  This indicates that about the same numbers builders view conditions as good than as  poor

Americans Find A New Source Of Spending Money -- Ilargi - Hurray! Americans have found a new source of spending money; after ATM-draining their home equity till even the roofs were underwater, and maxing out every single little shred of plastic they could lay their hands on, “families looked around for what was left”, and now it’s time to empty out 401(k)’s until there’s really nothing left at all anymore. Then it’ll be recovery or die, presumably. But a recovery is not going to happen, and certainly not for society’s bottom rung. Oh well, maybe there’s some form of slavery they can enter into. Not surprisingly, the US government is quite content with this new development: Early Tap of 401(k) Replaces Homes as American Piggy Bank The IRS collected $5.7 billion in 2011 from penalties, meaning that Americans took out about $57 billion from retirement funds before they were supposed to. [..] Adjusted for inflation, the government collects 37% more money from early-withdrawal penalties than it did in 2003. Meanwhile, the amount of home-equity loans outstanding was $704 billion in 2013, down 38% from the 2007 peak, according to Federal Reserve data.

Consumer Credit-Card Use Rebounds - Americans added to their credit-card tabs in March after a cautious start to the year, a sign that consumer spending is accelerating heading into the spring. The amount of outstanding revolving credit, mostly credit-card debt, rose at a seasonally adjusted annual rate of 1.6%, to $856.68 billion, a Federal Reserve report released Wednesday said. The gain comes after credit-card debt contracted at a 3.8% rate the prior month. The rising debt load suggests shoppers are confident enough in their job and income prospects to extend themselves in order to make additional purchases. Still, the amount revolving credit outstanding shrunk during the first quarter of 2014, reflecting in part unusually cold weather that slowed purchases of consumer goods. Overall consumer credit, including student and car loans but excluding real-estate loans like mortgages, increased by $17.53 billion in March, or at a 6.7% annual rate. Non-revolving debt, led by consistent demand for student loans, has outpaced growth in credit-card debt during most of the nearly five-year-old economic recovery. The amount of student loans issued by the federal government rose by $2.6 billion in March, on a non-seasonally adjusted basis. Federal student lending rose by $113.1 billion, or 18%, last year. Revolving debt increased at a much slower pace, rising 1.3% last year. Credit-card debt peaked during the recession at $1.02 trillion, before declining sharply early in the recovery. Revolving debt has mostly expanded since 2011, but remains well below the 2008 peak. U.S. banks, however, expect credit-card lending to expand more rapidly in coming years. In the Fed’s quarterly survey of banks’ senior loan officers released this week, the majority of respondents forecast growth in credit-card lending would reach prerecession levels of around 6% by 2016.

Consumer Credit Balances Jump --Consumer credit balances increased by $17.5 billion in March to a total of $3.141 trillion. The gain was a bigger increase than the $15.5 billion expected by economists. This was the biggest month-over-month growth rate since February 2013, reports Bloomberg. Nonrevolving debt like college and auto loans grew by $16.4 billion. Revolving debt like credit cards increased by $1.1 billion. It's certainly worth noting that February's gain was revised down to $12.9 billion from an earlier estimate of $16.4 billion. Here's a breakdown via the Federal Reserve:

94% Of March Consumer Credit Was For Student And Car Loans --  Another month, another confirmation that when it comes to the US consumer, it is all about student debt (and to a lesser extent, car loans). Moments ago the Fed reported that consumer credit number for March: at $17.5 billion, it not only blew out the expectation of a $15.5 billion increase (although when one adds last month's $3.5 billion downward revision to $13.0 billion the two month total actually missed), but was the highest monthly increase since February 2013. That's the good news. The bad news was once again in the composition: of this $17.5 billion $16.4 billion was non-revolving debt, or about 94% of total. The "good", or revolving, credit card debt? Only $1.1 billion. Further, recall that traditionally when measuring a consumer's confidence in the economy, and their ability to grow their income, the best proxy is a simple one - their credit card. Unfortunately, in the New Normal that is not the case, and as the chart below shows, revolving credit has barely budged from its post-Lehman lows and is still about 20% away from its previous all time high.

What's fueling consumer credit growth in the US? - US consumer credit report surprised to the upside today, beating forecasts by nearly $2bn. One positive aspect of this report is that for the first time in months we are seeing a jump in credit growth outside of the government sponsored student loans. The key to this report however is that the bulk of that growth increase was driven by auto finance. Revolving credit, which mostly represents credit cards, has remained subdued for quite some time now. In fact auto finance balances in the US have increased by 4% from a year ago. Who is funding all this growth? Banks have certainly been active, with Wells Fargo for example growing its auto loan book by 15% over the past year. And then we have the securitization markets, where asset-backed securities (ABS) are used to finance pools of auto loans and leases. ABS spreads have tightened since the taper-driven fixed income selloff last summer as demand for this paper remains strong. According to Deutsche Bank, we've had some $39bn issued in the first quarter alone. And it's not just about auto loans - securitization has been heating up in auto leases as well. Tracy Alloway has a great article in the FT (here) on auto lease securitization (which taking involves exposure to residual value of cars that come off lease.) 2014 could be a record year for such issuance. All of this activity has helped to improve consumer credit growth this year.As an aside, these are precisely the types of markets the ECB would love to jump-start in the euro area (see post).  With the banking system still undergoing deleveraging there, the central bank is looking for a way to get the "shadow" banking involved in order to boost consumer (and corporate) credit growth.

Consumer Spending In April Identical To February And March, Gallup Finds - So much for the post-cold-weather, pent-up demand stoked spending spree as human beings emerge from hibernation and buy-buy-buy all the food/iPads/clothes/cars they did not buy during the stormy first quarter... First, Goldman confirms that retail sales actually fell 2%, and then, more broadly, Gallup confirms that Americans' reports of daily spending in April averaged $88, virtually the same as in March ($87) and February ($87). Keep praying to the god of hockey-sticks that the now grossly revised down GDP for Q1 is merely setting the US up for the mother of all v-shaped recoveries (or not)...

What Drives Credit Card Debt? - -  Americans cumulatively have $854 billion in revolving loan (mostly credit card) debt, according to the Federal Reserve. The amount has actually declined since the Great Recession, as credit card issuers tightened their lending standards, borrowers became more cautious, and strong and effective consumer protection laws went into effect, producing substantial savings for households. Still, $854 billion is no small matter, and its source is worth considering. Why do some people stagger under a mountain of credit card debt, paying high interest rates on their outstanding balances and never seeming to come out ahead, while others rarely if ever carry debt for long, despite pulling out their plastic on a regular basis? That’s the question I set out to answer in a new study, which compares two groups of low- and middle-income households with working age adults. The households are statistically indistinguishable in terms of income, racial and ethnic background, age, marital status and rate of homeownership—yet one group carries credit card debt, while the other has credit cards but no debt. The study builds on Demos’ 2012 national survey of a statistically representative sample of 1,997 low- and middle-income households with and without credit card debt. One clear finding is that credit card debt is closely correlated with the absence of health coverage: households in which a member has gone without health insurance at some point in the last three years are 20 percent more likely to be carrying credit card debt than households in which no one has been uninsured. This suggests a potential benefit of the Affordable Care Act that is seldom discussed—by increasing the number of Americans with health coverage, Obamacare may cut our credit card debt.

Gasoline Price Update: First Decline After 12 Weeks of Increases - It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular is down three cents and Premium two cents, the first decline after 12 weeks of increases. Regular is up 49 cents and Premium 48 cents from their interim lows during the second week of November. According to, California and Hawaii remain the only states with regular above $4.00 per gallon, and only one states, Connecticut, is averaging above $3.90. Montana has the cheapest regular at $3.36, up two cents from last week

The US needs better roads and bridges–and less congestion–but not a higher federal gasoline tax - Republicans outraged the US has the highest corporate tax rate among advanced economies should be equally upset about America’s subpar national transportation system. For instance: the most recent global competitiveness report from the World Economic Forum ranked the quality of US roads as just 18th in the world. Now the case for upgrading American transportation infrastructure isn’t about short-term Keynesian stimulus. It’s about long-term growth. “Places that have the greatest  accessibility, that enable more people to interact in less time, produce the greatest wealth,” write transportation experts Matthew Kahn and David Levinson in a 2011 report. More accessibility also means more economic mobility. A 2013 analysis from the Equality of Opportunity Project found climbing the ladder much harder in cities with longer commute times. Indeed, the monetized cost of US congestion is around $120 billion a year. Unfortunately the debate about US transportation policy resembles the one about the minimum wage. The Highway Trust Fund is almost depleted, and some in Washington want to finance it by raising the federal gasoline tax. They note the current 18.4-cent rate hasn’t increased since 1993, which mean its real value has declined by almost 40%. So why not phase in a big gas tax increase and then index it for inflation? Here’s a better idea: instead of raising the gas tax, eliminate it. Oh, you wouldn’t have to do all at once. You could phase it out over several years. Meanwhile, states and cities could start calculating what their infrastructure needs really are — repairing existing roads vs. building new ones — and the best way to pay for them, such as state gas taxes, broader sales taxes, tolls, or  advanced congestion pricing.

Hotels: On track for Strongest Year since 2000 - From STR: US hotel results for week ending 3 May In year-over-year measurements, the industry’s occupancy increased 7.5 percent to 67.4 percent. Average daily rate increased 5.6 percent to finish the week at US$116.41. Revenue per available room for the week was up 13.6 percent to finish at US$78.42. Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.The 4-week average of the occupancy rate is solidly above the median for 2000-2007, and is at the highest level since 2000.   The following graph shows the seasonal pattern for the hotel occupancy rate for the last 15 years using the four week average.

Celebrate The Recovery By Buying Restaurant Garbage (And Yes: There's An App For That) - In a move reminiscent of the Victorian Age, when those "downstairs" lived off the scraps of those "upstairs", a new app 'PareUp' is set to revolutionize the way the increasingly poor and starving masses in America feed themselves. As HuffPo reports, in a country that wastes between 30 and 40 percent of its food, PareUp is a new app that aims to connect consumers to restaurants and food shops with excess food - enabling the impoverished to benefit from the excess greed of the well-to-do by buying their used and forgotten food scraps (at significant discounts of course). "Good food is a terrible thing to waste," boasts the app - and rightly so - but is it not a dismally sad reflection of a nation, that opines of its all time high stock prices as indicative of its cleanest dirty shirt status, that we need this service (and there's an app for that!)

Defrosting the economy: The US economy continues to recover from the harsh winter weather. The improvement is clearly visible in the service sector new orders index which came out today. For those who don’t think this winter’s impact was a big deal, consider the extra expenditures on energy alone – cash that went out of consumers’ and businesses’ pockets. The chart below shows natural gas in storage this winter vs. the range over the previous 5-years. Someone had to pay for all that extra natural gas. Source: EIA Not only were companies, households, and municipalities forced to buy this gas, but they had to do so at significantly elevated prices. Furthermore, in the Northeast some of us are still using heating oil which ended up being an even greater cash drain. And we are only talking about the incremental energy expense. Add to that all the missed work, canceled flights and lost retail sales and it adds up to a fairly severe economic shock.

Why America's Essentials Are Getting More Expensive While Its Toys Are Getting Cheap - In the last ten years, what's gotten more expensive? And what's gotten less expensive? Here's a fascinating snapshot of the last decade in American prices...It comes from Annie Lowrey's look at U.S. poverty, which is appropriate, because you occasionally hear conservatives say that poor people aren't really poor because, you know, they have refrigerators and TVs, don't they? Yes, they do. More than 80 percent of low-income households have a fridge, TV, microwave, and stove. They can heat food and cool food and watch American Idol, no problem.But the power to alter the temperature of your food and watch FOX is not quite the same as being rich. Tens of millions of families remain uninsured, millions more can't afford to go to (or finish a degree at a high-quality) college, and millions more struggle to pay for daycare for their children. Meanwhile, used HD televisions are dirt cheap and it's never been more affordable to buy simple electronics. Why does it seem like the least important things in life—TVs, toys, and DVD players—are getting cheap while the most important parts of the economy are getting more expensive?

Trade Deficit decreased in March to $40.4 Billion - The Department of Commerce reported this morning: Total March exports of $193.9 billion and imports of $234.3 billion resulted in a goods and services deficit of $40.4 billion, down from $41.9 billion in February, revised. March exports were $3.9 billion more than February exports of $190.0 billion. March imports were $2.5 billion more than February imports of $231.8 billion. The trade deficit was close to the consensus forecast of $40.2 billion. The first graph shows the monthly U.S. exports and imports in dollars through March 2014. Both imports and exports increased in March. Exports are 17% above the pre-recession peak and up 5% compared to March 2013; imports are about 1% above the pre-recession peak, and up about 5% compared to March 2013. The second graph shows the U.S. trade deficit, with and without petroleum, through March. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil imports averaged $93.91 in March, up from $90.21 in February, and down from $96.95 in March 2013. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. The trade deficit with China increased to $20.4 billion in March, from $17.9 billion in March 2013. About half of the trade deficit is related to China. Overall it appears trade is picking up slightly.

March Trade Deficit Worse Than Expected; Decline From February Due To Winter Olympic Royalties End -- And just like that Q1 GDP may have turned even more negative, after the March trade deficit ended up being worse than the $40.0 billion expected, printing at $40.4 billion. However, the one offset may be that the February deficit was revised from $42.3 billion to $41.9 billion, in effect being a wash to the Q1 GDP number, which as most already know, is set to be -0.4% at the first revision. Among the reasons for the (smaller than expected) decline in the deficit was a "decrease in imports of services mainly accounted for by a decrease in royalties and license fees, which in February included payments for the rights to broadcast the 2014 Winter Olympic Games." For once (not so) harsh weather (in USSR 2.0) was a boost to the economy.

U.S. Trade With Russia Grows in March Despite Ukraine Crisis -  Rising U.S.-Russian tensions over the continued disorder in Ukraine didn’t derail trade between the two Cold War rivals in March, the same month Russia annexed the Crimean peninsula. Exports of U.S. goods to Russia rose 9% in March from the prior month. Exports declined 9% in the same month, a year earlier. That’s according to non-seasonally adjusted figures deep within Tuesday’s report from the Commerce Department on international trade. Meanwhile, imports from Russia rose 35% in March from February, stronger than the 25% monthly gain a year earlier. Through the first three months of the year, U.S. exports to Russia have increased 6% and imports from that country declined 3%. Month-to-month figures on trade with individual countries can be extremely volatile and are not always representative of current economic and geopolitical conditions. Still, the March developments in U.S.-Russia trade were more in line with global trends than a falling out between trading partners. For example, U.S. exports to the European Union rose 17% in March, and imports increased 20%. Russia supplies oil, metals and fertilizer to the U.S. and imports American machinery, vehicles and food. U.S. trade with Ukraine is much smaller.

U.S.-China Trade: Rebound in March 2014 - After falling below the recession line in February 2014, it would appear that the U.S. economy began to rebound in March 2014, as measured by the value of goods imported by the U.S. from China in that month.  Meanwhile, the value of goods exported by the U.S. to China in March 2014 also picked up over the level recorded in February 2014, although here, we suspect that the relative timing of China's New Year and Spring Festival in 2014 boosted the direct year-over-year growth rate.  To get a better sense of how both the U.S. and China's economies are performing, we accounted for the variable timing of China's New Year and Spring Festival calculating the rolling sum of each nation's imports and exports to each other over a two month period, then calculated the year-over-year growth rate. Since China's New Year and Spring Festival can fall in either January or February, or even be split between these two months, this approach should allow us to make decent year-over-year measurement of the growth rate of trade between the two nations.  The results of that exercise are presented below, with the month indicated the second of the two months whose trade values were added together:

Recent improvements in US trade deficit are unlikely to last - We've received a number of questions on the trajectory of US trade balance going forward. It seems that since 2011, US trade deficit has stabilized and has been gradually improving.  The projections going forward however are all over the place, with some, such as the one from the OECD (see chart) predicting a deteriorating trade balance going forward. Why?  The key factor in the recent improvements has been the reduction in US net energy imports - now at the lowest level in some 20 years. However, while the gap between energy production and consumption is expected to narrow some more, the US is not expected to become a net exporter of energy.If these projections from the EIA are correct, the impact of lower net energy imports on US trade deficit will diminish over the next few years (the gap between consumption and production in the chart above is expected to stabilize.) That leaves us with the non-energy component of the trade balance, where the recent trend - and more importantly the projection - is not looking great. While the recent improvements in US trade deficit are a positive, they are largely driven by lower net energy imports. As the economy improves, growth in imports due to stronger demand will become the dominant trend, resulting in a downturn in the overall trade balance. This will be exacerbated by the aging population in the US, a shift that is likely to put downward pressure on savings rate relative to consumption, worsening the deficit (Savings - Investment = Exports - Imports). Here is a good overview of the situation from Merrill Lynch:

Vital Signs: Capital Goods Trade Is Firmly in Deficit - Time was, the U.S. dominated the capital-goods sector, enjoying a surplus in global trade of machinery, aircraft and computers. But those days are long gone, and the sluggish global economy is making the situation worse.The Commerce Department said today that the U.S. trade deficit narrowed, as expected, to $40.4 billion in March from $41.9 billion in February. The trade gap for nonauto capital goods also narrowed in March, but was much worse than its year-ago reading, and has been deteriorating for most of the recovery. Capital-goods exports are still rising. The problem is that with foreign economies struggling, growth is weak. Meanwhile, U.S. companies, flush with cash and facing a need to modernize, are buying more foreign-made capital goods.

Is the Strong Dollar the Real Cause of the Collapse of US Manufacturing and Secular Stagnation? - Yves Smith - Yves here. I managed to miss this VoxEU post from last month, and it is still timely. It argues that economists have generally been using the wrong measure of relative dollar strength to assess how the level of the currency played into the loss of manufacturing jobs and insufficient internal demand, now better known as “secular stagnation”. I’m sympathetic to that thesis because the early Reagan era featured a spike in the dollar. Japanese manufacturers in particular made very strong inroads during those 24 months, and US producers were never able to claw those losses back, even when the dollar fell (Japanese carmakers had also started getting smart and anticipated the backlash by increasing their domestic content).  And US policy came to favor finance over manufacturing. Remember the Clinton “strong dollar” policy? That was Bob Rubin’s, ex co-chairman of Goldman’s, brainchild. One big objective of that approach was defending New York’s position as a financial center. As economist and political scientist Tom Ferguson has pointed out, Rubin and his followers believed that a financial center would not be able to maintain its influence if it had a weak currency.

Markit Reports Slowest Service Jobs Creation In Over A Year - While modestly better than expected, Markit's Services PMI fell in April from March's snap-back "we are saved" post-weather bounce.. and that's the good news! While abover "50" and this in expansion mode, job creation slipped to 13-month lows! As Markit summarizes, "the surveys are also signalling an easing in the rate of job creation since the start of the year, pointing to private sector payroll growth in the region of 100k, meaning a substantial slowing compared to the recent average 225k increases signalled by official data over the past three months."

ISM Services Jumps To 8-Month High But Employment Tumbles - At 51.3, the employment sub-index of the ISM Services data is at its lowest since May 2013 (ex February's "weather" impacted plunge). But hey - who cares about jobs, the headline improved to 8-month highs and beat expectations so sell JPY and buy stocks... new export orders (and new orders overall) rose to 8 months highs (but we don't need jobs for that?)... As an aside, Prices Paid surged to its highest since October 2012 as cost-push inflation appears to be looming.

ISM Non-Manufacturing Index increased in April to 55.2 - The April ISM Non-manufacturing index was at 55.2%, up from 53.1% in March. The employment index decreased in April to 51.3%, down from 53.6% in March. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: April 2014 Non-Manufacturing ISM Report On Business® "The NMI® registered 55.2 percent in April, 2.1 percentage points higher than March's reading of 53.1 percent. The Non-Manufacturing Business Activity Index increased substantially to 60.9 percent, which is 7.5 percentage points higher than the March reading of 53.4 percent, reflecting growth for the 57th consecutive month at a much faster rate. The New Orders Index registered 58.2 percent, 4.8 percentage points higher than the reading of 53.4 percent registered in March. The Employment Index decreased 2.3 percentage points to 51.3 percent from the March reading of 53.6 percent and indicates growth for the second consecutive month, but at a slower rate. The Prices Index increased 2.5 percentage points from the March reading of 58.3 percent to 60.8 percent, indicating prices increased at a faster rate in April when compared to March. According to the NMI®, 14 non-manufacturing industries reported growth in April. The majority of survey respondents' comments indicate that both business conditions and the economy are improving."This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. This was above the consensus forecast of 54.0% and suggests faster expansion in April than in March

Vital Signs: Nonmanufacturers Rebound in April - After hunkering down in the winter, nonmanufacturers are revving up again, adding to hopes for economic growth this quarter. The Institute for Supply Management said Monday its survey of nonmanufacturing enterprises — mainly service producers along with construction firms and public administrators — shows a steep pick-up in April business activity. The index covering production and new orders each bounced back after slowing during the winter. Anthony Nieves, who oversees the ISM report, says that in addition to the weather, Asian holidays early in 2014 held down activity. Now that those holidays are over, and U.S. temperatures are warming, the non-manufacturing sector looks to be in a position to help to power the economy in the second quarter and beyond.

US wholesale stockpiles rise 1.1 percent in March - US News: — U.S. wholesale businesses increased their stockpiles in March by the largest amount in five months while sales increased at the fastest clip in 10 months. Wholesale stockpiles rose 1.1 percent in March after a 0.7 percent gain in February, the Commerce Department reported Friday. It was the ninth consecutive monthly gain and the largest increase since a 1.2 percent rise in October. Sales at the wholesale level were up 1.4 percent, the best showing since a 1.9 percent rise in May 2013. The sizable gain in sales should encourage businesses to keep restocking their shelves to meet rising demand. That will mean increased orders to factories and rising production which would boost economic growth. In the January-March quarter, the economy slowed to a barely discernible growth rate of 0.1 percent after growth of 2.6 percent in the October-December quarter. A slowdown in inventory building subtracted 0.6 percentage point from first quarter growth. But economists expect the drag from a slowdown in inventory building will ease in the second quarter. The big rise in March inventories supports that view, indicating that there was growing momentum headed in the second quarter. Many analysts are looking for growth to easily top 3 percent in the second quarter with the most optimistic saying the economy may surge to growth above 4 percent, reflecting pent-up demand from consumer spending that was delayed during the harsh winter.

Earnings Growth Upturn Masks Labor Market Weakness - Earnings growth has risen for an unwelcome reason – because growth in hours has fallen faster than pay growth. As bad as that is for income growth, it’s also not a credible signal of an inflation upturn. In the context of the ongoing taper, the Fed, like most other observers, remains optimistic about economic prospects. In turn, a number of economists have been focusing on “bullish” indicators of employment and inflation. In particular, some of them think the rise in average hourly earnings (AHE) growth for nonsupervisory workers since 2012 implies less labor market slack. So, is the rise in AHE growth actually indicative of strengthening labor-market fundamentals, particularly inflationary pressures? We turn to our cyclical framework for answers. For the private sector, year-over-year (yoy) growth in AHE has indeed risen noticeably since 2012. Since AHE is the ratio of total weekly pay to total weekly hours, it helps to look at the growth rates of each, shown in the lower panel of the first chart (purple and gold lines, respectively). From this perspective, the real story emerges. The yoy growth rates of both pay and hours have actually been declining since early 2012, but hours growth has fallen faster than pay growth. So, while rising AHE growth may seem like a good thing, in this case it’s actually driven by downturns in its components.

Unemployment dynamics - What accounts for the sharp spike in unemployment during recessions? And why did the unemployment rate recover so slowly after recent recessions? I’ve been looking into these questions with UCSD Ph.D. candidate Hie Joo Ahn, and we’ve just finished a new research paper summarizing some of our findings. One of the interesting details behind the unemployment numbers reported by the Bureau of Labor Statistics is a question that asks unemployed individuals how long they’ve been looking for work. The graph below plots the number of Americans each month who say they’re newly unemployed (U1), are unemployed and have been looking for 2-3 months (U2.3), and those who have been looking 4-6 months. Note that longer-term unemployment rises more sharply during recessions.  If you’ve been looking for a job for 2-3 months, it means you would have been newly unemployed 1 or 2 months ago. From the average values of (U1) and (U2), you can calculate that on average about half of those who are newly unemployed either found a job or dropped out of the labor force the following month. On the other hand, by comparing (U2.3) with (U4.6), you find that on average something like 63% of those who have been looking for work for 2-3 months will still be looking the following month. The number of people who have been looking for work for 7-12 months (U7.12) and more than a year (U13+) skyrocketed in the Great Recession, and is still higher than it had been even at the worst point of any previous postwar recession.

April jobs report: More mixed signals.- The establishment survey reports total non-farm employment increased 288,000 and the previous two months were also revised up a total of 36,000 over what was previously reported. Job growth over the year has averaged 190,000 per month. Moreover, the job gains were fairly widespread with service producing jobs leading the way with 220,000 jobs added. Goods producing and government employment showed little change.The unemployment rate fell from 6.7% to 6.3%. But is the report really as good as it looks at first blush? Maybe not…average weekly hours of work were unchanged at 34.5 and average hourly and weekly earnings remained flat at $24.31 and $838.70, respectively. According to the household survey the labor force fell by 806,000 and the labor force participation rate declined from 63.2 to 62.8. Is this decline in the labor force participation rate (and the consequent decline in the unemployment rate) due to discouraged searchers leaving the labor market? Or, is it a longer run trend down in participation rates? According to the household survey employment fell by 73,000. Some of the decline in labor force participation is attributed to the fact that the long duration unemployed have dropped out of the labor force.  The average duration of unemployment is little changed at 35 weeks and more than 35% of the unemployed are unemployed for 27 weeks or more. Many of the long duration unemployed eventually stop looking for work and thus drop out of the labor force.  This has been an important contributor to the declines in labor force participation. As often happens, it is possible to use this report to signal strong growth in the labor market or to underscore the real weaknesses in the economy. The takeaway is that the labor market still appears fragile.

A Flat Month for U.S. Jobs - Overall, the unemployment rate fell in April 2014 because of a sharp increase in the number of Americans who are no longer being counted as being part of the U.S. labor force. For Econtrarian Paul Kasriel, that data presents a mysteryIn the 12 months ended April 2014, there has been a 0.5 point net decline in the labor participation rate, the civilian labor force as a percent of the civilian noninstitutional population. In these same 12 months, there has been a 1.2 point net decline in the headline unemployment rate. Given the decline in the participation rate, a statistic that the media has been trained to focus on when interpreting a decline in the headline unemployment rate, can we conclude that the decline in the headline unemployment rate overstates the improvement in labor market conditions because potential workers are choosing not to “participate” in the hunt for jobs due to weak job prospects? No, because in these same 12 months there has been a 1.3 point decline in the U-5 unemployment rate, which accounts for labor force dropouts due to weak job prospects.  It remains a mystery as to why in April the labor force plunged by 806 thousand and why the labor participation rate fell by 0.4 points. Looking at changes in the participation rate by age categories, it is revealed that the largest April declines were concentrated in the 16-to-24 year old cohort. Perhaps a light when on in the brains of our youth, alerting them to the value of education and inducing them to stay in or go back to school. I don’t know. But what I do know from the data in other parts of the Household Employment Situation Survey is that the bulk of the declines in the April labor force and participation rate was not due to people suddenly deciding to sit on their couches and eat Cheetos all day because job prospects were so bleak in April.

Did Birth/Death Revisions Distort Friday's Big Jobs Number?: A couple of people emailed me last week wondering how the BLS birth/death model impacted last Friday's payroll report. Recall that the payroll report came in a blistering +288,000 but the household survey showed the economy lost 73,000. There it is, highlighted in red. The BLS Birth/Death Model added 234,000 jobs to the non-seasonally adjusted jobs number. But what does that mean, and is it significant? To address that question, we need to understand what the model does. The births and deaths in question are the births and deaths of businesses, not people. When businesses start, there is a lag before they are incorporated in any job surveys. When businesses go out of business, people who worked for them are unemployed. Given that not every business reports statistics every month, the BLS uses models to estimate the net number businesses (and people employed in them) that go in and out of business every month.  People take the headline number and compare it to the birth-death adjustment. This month, the headline number was +288,000 and the birth-death number was +234,000. Some conclude the adjustment added 234,000 out of the 280,000 headline number.The problem is 234,000 is a seasonally unadjusted number and 288,000 is a seasonally adjusted number. It is mathematically invalid (and horribly so) to subtract one from the other.Moreover, in CES Birth/Death Model Frequently Asked Questions, the BLS notes "Months with generally strong seasonal increases such as April, May and June generally have a relatively large positive factor. Conversely, months with overall strong seasonal decreases, such as January, generally have a relatively large negative factor."The BLS takes all of the unadjusted data, combines it, then applies a seasonal adjustment to the total. There is no seasonally adjusted birth/death model.

I Call BS on BLS Which Says 100% of Job Gains Were Full Time -Actual, not seasonally adjusted (NSA), nonfarm payrolls rose by 1.15 million in April to a total of 138.3 million. This is better than April’s 10 year average gain of 898,000. It also beat the April 2012 gain of 994,000. The annual rate of change was +1.75%, slightly stronger than the the last two months, but right in line with the momentum of the past two years. Not seasonally adjusted data is typically not subject to material revision, unlike the heaadline, seasonally adjusted impressionistic data, which is revised 7 times over 5 years before finalization. According to the household survey (CPS), actual not seasonally adjusted total employment rose by 677,000 in April. That was worse than the 10 year average of 771,000 for that month. It was also much worse than last year’s April gain of 1.02 million. The establishment survey (CES) of nonfarm payrolls purports to count the total number of jobs. The household survey supposedly counts the number of people holding jobs. Here’s the problem. The total number of jobs according to the establishment survey was 138.3 million. The total number of employed persons according to the household survey was 145.6 million. Must be all those eBay sellers who are not counted in the establishment survey. Or could it be-eeee…eee, no, not SATAN, but that the household survey is overcounting the number of employed and understating unemployment by attributing employed status to self employed people not making any money like, say, real estate sales people working on commission? Making even less sense is that the BLS (Bureau of Liar Statistics?) says that full time jobs counted in the household survey rose by 1.09 million to 118.1 million in April. That crushed the 10 year average of a gain of 674,000 for the month. It was also better than April 2013′s gain of 878,000. Apparently full time jobs are crushing it while part time jobs are declining. Again, it must be those full time, no pay self employment jobs.

Another Bell-Ringing Discrepancy: Gallup vs. BLS Unemployment Rate - In light of the enormous discrepancy between the Household Survey and the Establishment Survey in last Friday's jobs report, I thought it might be worthwhile to revisit the discrepancy between Gallup and the BLS that I have talked about before. Recall that last Friday the Establishment survey showed a net gain in jobs of 288,000 while the household survey showed a net loss in employment of 73,000.Those are seasonally adjusted numbers. For details please see Nonfarm Payrolls +288,000, Unemployment Rate Drops to 6.3%; Household Survey Employment -73,000, Labor Force -806,000,  The weekly Gallup Employment Poll shows the percentage of unemployed is 6.9% and the percentage of underemployed is 16.4%. Gallup explains "Weekly results reflect 30-day rolling averages ending each Sunday, based on telephone interviews with approximately 30,000 adults. Because results are not seasonally adjusted, they are not directly comparable to numbers reported by the U.S. Bureau of Labor Statistics." Actually, results are directly comparable if Gallup would simply use the BLS non-adjusted data. Here are the comparable charts.

Historical recoveries in manfufacturing vs.retail jobs - This is the second installment in my look at how low vs. high paying jobs have recovered in past recessions. My hypothesis is that the typical pattern in recoveries is that low wage jobs recover faster than high wage jobs.  Thus, earlier in a recovery it will be the case that the economy seems to be producing only low wage jobs.  Since most post-World War 2 recoveries restored all jobs relatively quickly, the pattern was not long-lasting.  This recovery, however, is from a much deeper hole and is taking much longer, so the period in which it is producing mainly low wage jobs is taking longer and has been profoundly noticed.   In this installment I am comparing high-paying manufacturing jobs with low paying retail jobs. This comparison is a special challenge, since manufacturing employment reached its peak in 1979,  and has trended downward ever since.  So, while I can look at recessions through 1974 as I did with construction jobs, measuring the month at which the respective category of jobs exceeded its prior peak of employment, it is impossible to do so for recessions beginning in 1979.Since there has been an overall declining trend in manufacturing jobs since, what I can do is compare the first derivative of manufacturing job growth/decline against the first derivative of retail job growth/decline.  In other words, at what point after the recession did each category have its highest rate of growth. The first derivative information is represented in italics in the chart below:

Construction Employment: Pace of Hiring Increasing - Here is an excerpt from a post I wrote in 2012: Where are the construction jobs? There were several reasons why construction jobs didn't decline at the same time as housing starts. First, construction includes residential, commercial and other construction (like roads). Even after housing starts began to collapse, commercial real estate was still booming and workers shifted from residential to commercial (many commercial projects have long time frames - and many developers remained in denial). Also some construction workers are paid in cash (illegal immigrants), and these workers weren't counted on the BLS payrolls. Now people are asking "Where are the construction jobs?" Oh, Grasshopper ... the construction jobs are coming.  And from Michelle Meyer last year on the lag between activity and construction employment: Construction Coming Back and other researchers More Research on Construction Employment Now is appears the pace of hiring is starting to pickup:

No Sign of Labor Shortages in Construction: There are Seven Unemployed Construction Workers for Every Job Opening - The National Association of Home Builders wants you to believe their members face a serious shortage of construction workers, even though construction employment is more than 1.7 million jobs below its pre-recession peak, and unemployed construction workers outnumber job openings in construction by well over seven-to-one. More and more news stories, even in respected sources like NPR and the Wall Street Journal, repeat the builders’ talking points and toss around wage figures with very limited resemblance to reality. (A healthy dose of skepticism is in order when employers complain about high wages. How many tile setters make “$100,000 a year,” which the WSJ story suggests is now the pay for experienced workers in Denver? Not many. The median hourly wage for tile setters in Denver is less than $18 an hour, and nationally, even the 90th percentile wage for tile setters is only $73,510 a year.)The best way to identify a tight labor market, let alone a market beset by actual labor shortages, is to examine wages. Basically, if wages aren’t rising, the labor market isn’t tightening; if they don’t rise strongly, there are no shortages. As Adam S. Posen and David Blanchflower argue in a recent paper, if wages aren’t rising, it’s a sign of labor slack, weak demand, and a weak economy.

Productivity Slows At Fastest Pace In A Year As Labor Costs Soar -  Non-Farm productivity fell most in a year at 1.7% in Q1 - notably worse than the 1.2% drop that was expected. Output growth slowed dramatically and real compensation also fell. However, unit labor costs surged 4.2% (its most since Q4 2012) as unit non-labor costs tumbled 2.7% (its worst since Q4 2012). From the report: Unit labor costs in nonfarm businesses increased 4.2 percent in the first quarter of 2014, due to both the decline in productivity and a 2.4 percent increase in hourly compensation. Unit labor costs increased 0.9 percent over the last four quarters. (See chart 2 and tables A and 2.) BLS defines unit labor costs as the ratio of hourly compensation to labor productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them. Curiously, the Manufacturing sector did not see the collapse in productivity or the spike in compensation as productivity increased 3.3 percent in the first quarter of 2014, while output increased 1.8 percent and hours worked decreased 1.4 percent. (See chart 3.) Productivity increased 3.6 percent in the durable goods sector and increased 2.5 percent in the nondurable goods sector. Over the last four quarters, manufacturing productivity increased 2.2 percent, as output increased 2.4 percent and hours increased 0.2 percent. Unit labor costs in manufacturing increased 0.1 percent in the first quarter of 2014 and declined 0.2 percent from the same quarter a year ago. (See chart 4 and tables A and 3.)

Vital Signs: Productivity Growth Is Still Struggling - Productivity—a building block for better living standards—stumbled in the first quarter. According to Labor Department data released Wednesday, output per hour worked in the nonfarm business sector fell at a 1.7% annual rate in the first quarter. Some of the first-quarter drop reflects the drag on output caused by the harsh winter. But looking longer-term, productivity growth has slowed. Compared to a year ago, productivity is up a weak 1.4%. Of course, the demand for labor has not revved up much in recent quarters, so the growth in unit labor costs is also muted, up just 0.9% in the year ended in the first quarter. In her testimony Wednesday, Fed chairwoman Janet Yellen said, “many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter.” The question is whether that pickup in output is being accomplished through better productivity or more hiring and longer workweeks.

Unit labor costs rise 4.2% in the first quarter: Unit labor costs are a measure of productivity: how much does business pay a worker in order to get one unit of production? Last year Pulitzer Prize winning labor reporter David Cay Johnston got caught up in some statistical sloppiness, as first quarter 2013 unit labor costs dropped -3.5% that quarter. He forgot that income had been moved forward into 4Q 2012 due to the expiration of some of Bush's tax cuts, thus creating a big distortion in the data (unit labor costs had increased over 8% in 4Q 2012). With this morning's release, unit labor costs are about 2/100's of a percent from their all time peak: But this isn't unalloyed good news, since adjusting for inflation shows us that businesses are still paying labor about 12% less than they were only a decade ago for the same amount of production, although the measure may have stabilized in the last 2 years.

Wages, Slack, Labor Force Participation, and the Fed - Good read from Binyamin Appelbaum this AM on a new paper tying together several recent themes around here, including weak wage growth (and the importance of the Fed not overreacting to it) amidst still slack labor markets, particularly once you factor in depressed labor force participation, as you must. The paper, by Posen and Blanchflower, makes a couple of important contributions in these areas.  First, they show that if you want to understand the pressures, or lack thereof, on wages, unemployment alone isn’t enough these days—you also need to include labor force participation (btw, the stuff in the NYT piece about last month’s flat wage trend should be heavily discounted; that’s mostly monthly noise).  Quantitatively, they find that increasing unemployment is still a stronger determinant of wage trends—by about a factor of three.  Not surprising, since many who leave the labor force do so voluntarily.  But, especially lately, lots of leavers are responding to the lack of gainful opportunities, and that’s relevant in terms of measuring wage, and ultimately, price pressures.Which brings us to their second interesting point, as Appelbaum writes:Instead of counting heads, policy makers [at the Fed] can simply rely on market forces to do the work. Wage inflation, after all, is basically a summary of the balance between supply and demand. Employers raise wages as they find it harder to hire and retain qualified workers, so the market, in effect, is constantly judging the extent of labor market slack.

The Civilian Labor Force, Unemployment Claims and Recession Risk:  Every week I post an update on new unemployment claims shortly after the BLS report is made available. My focus is the four-week moving average of this rather volatile indicator. The financial press generally takes a fairly simplistic view of the latest number, and the market often reacts, for a few minutes or a few hours, to the initial estimate, which is always revised the following week. One of my featured charts in the update shows the four-week moving average from the inception of this series in January 1967. The chart, above, however, gives a rather distorted view of Initial Claims. Why? Because it's based on a raw, albeit seasonally adjusted, number that doesn't take into account the 103% growth in the Civilian Labor Force since January 1967, as illustrated here: The Civilian Labor Force in the chart above has more than doubled from 76.52 Million in January 1967 to 155.42 Million today. The curve of the line, which the regression helps us visually quantify, largely reflects the employment demographics of the baby boom generation, those born between 1946 and 1964. In 1967 they were starting to turn 21. The oldest are now eligible for full retirement benefits. Another factor is the curve is the rising participation of women in the labor force (see this illustration). For a better understanding of the weekly Initial Claims data, let's view the numbers as a percent ratio of the Civilian Labor Force. The latest percent ratio of 0.20% means that out of 10,000 workers, twenty made an initial application for unemployment insurance payments in the latest data, a new interim low. The number during the past year has been hovering just above the low end of the 0.20% to 0.67% range over the last four-plus decades. Initial Claims are substantially below the levels during the business cycles of the stagflation years of the 1970s and early 1980s.

The REAL "real unemployment rate" for April 2014 - This morning the New York Times ran an article describing how poor wage growth is the best measure of how fragile this economic expansion has been for average Americans.  I agree.  Unfortunately in that article, unsourced, they reported that [I]n Friday’s jobs report..., the unemployment rate fell entirely because people stopped looking for work, not because they found jobs. What a load of crap. The BLS itself said that the decline in labor force participation in April was mainly because fewer than normal people entered it, rather than people dropping out.  But this poor reporting is typical. The EPI wrote that its "missing workers" number (based on estimates from a research paper published 7 years ago) reached a new high in April, despite the fact that the economy has added over 225,000 jobs per month for the last three months -- well above any estimate of what is needed to absorb population growth.  Meanwhile the popular blog Naked Capitalism calculates a rate of 12%+ for unemployment with an analysis that begins with an unspoken "assume there was no Baby Boom" and completely ignores the inevitable downward pressure Boomer retirements must place on the labor force participation rate. So herewith, let me update the "real real unemployment rate. In order to be counted among the unemployed for purposes of the monthly jobs survey, a person must have actively looked for a job during the reference period.  But what about people who are so discouraged that they have completely stopped looking for work and have simply dropped out of the labor force? The monthly household jobs survey measures exactly this in a statistic called "not in labor force, want a job now."  Here's what that metric shows for the last 20 years:The number of discouraged workers rose by nearly 2,000,000 in the wake of the great recession, but has declined by about 1/3 of that number in the last two years. In order to find out what the "real" unemployment rate is, including such discouraged workers, we simply add the number of people shown above to both the numerator (unemployed) and denominator (civilian labor force, which excludes those adults not interested in jobs, like retirees) of the statistics used for the unemployment rate.  Here's what that shows:

The Part-Time Employment Ratio: Slight Improvement in April - Let's take a close look at Friday's employment report numbers on Full and Part-Time Employment. Buried near the bottom of Table A-9 of the government's Employment Situation Summary are the numbers for Full- and Part-Time Workers, with 35-or-more hours as the arbitrary divide between the two categories. The Labor Department has been collecting this since 1968, a time when only 13.5% of US employees were part-timers. That number peaked at 20.1% in January 2010. The latest data point, over four years later, is only modestly lower at 18.7% last month, although this is a new interim low. Here is a visualization of the trend in the 21st century, with the percentage of full-time employed on the left axis and the part-time employed on the right. We see a conspicuous crossover during Great Recession.  Here is a closer look since 2007. The reversal began in 2008, but it accelerated in the Fall of that year following the September 15th bankruptcy of Lehmann Brothers. In this seasonally adjusted data the reversal peaked in early 2010. Four years later the spread has narrowed, but we're a long way from returning to the ratio before the Great Recession.

Goldman Sachs on the Labor Force Participation Rate - Another note on the labor force participation rate: From Goldman Sachs chief economist Jan Hatzius:

  • • Since the start of the Great Recession in late 2007, the labor force participation rate has fallen by more than three percentage points, including a sharp drop in April back to the late-2013 lows. The extent of the decline has surprised many economists, ourselves included. What accounts for it, and will it continue?
    • The first question is relatively easy to answer. Using an approach similar to that of a recent Philadelphia Fed study, we can show that the decline reflects a combination of 1) more retirements, 2) more disability, 3) higher school enrollment, and 4) more discouraged workers.
    • The second question is more difficult, but we believe the answer is no. The most important reason is that the big increase in retirements in the last three years looks far less “structural” to us than generally believed. Many people seem to have pulled forward their retirement because of the weak job market. This leaves correspondingly fewer retirements for future years, and it means that the impact of retirements on participation is likely to become much less negative.
    • The other drags on participation are also likely to abate or reverse. Inflows into disability insurance are now slowing sharply, consistent with past cyclical patterns. The school enrollment surge has started to reverse as young workers are finding better job opportunities. And stronger labor demand is likely to pull many discouraged workers back into the job market.
    • If participation does stabilize or rise a bit, the decline in the unemployment rate should slow even if payroll growth stays at the sturdy levels seen in recent months. This is one key reason why we believe Fed rate hikes are still far off.

Participation Rate: Trends and Cohorts - A frequent question is: "I've heard the participation rate for older workers is increasing, yet you say one of the reasons the overall participation rate has fallen is because people are retiring. Is this a contradiction?" Answer: This isn't a contradiction. When we talk about an increasing participation rate for older workers, we are referring to people in a certain age group. As an example, for people in the "60 to 64" age group, the participation rate has increased over the last ten years from 51.1% in April 2004 to 55.7% in April 2014 (see table at bottom for changes in all 5 year age groups over the last 10 years).  However, when we talk about the overall participation rate, we also need to know how many people are in a particular age group at a given time. As an example, currently there is a large cohort that has recently moved into the "60 to 69" age group. .This graph shows the population in each 5 year age group in April 2004 (blue) and April 2014 (red).  Note: Not Seasonally Adjusted, Source: BLS. In April 2004, the two largest groups were in the "40 to 44" and "45 to 49" age groups. These people are now the 50 to 59 age group.  In April 2004, there were also a large number of people in the 50 to 59 age group. These people are now 60 to 69. The following table summarizes what has happened if we follow these two cohorts (40 to 49 in April 2004, and 50 to 59 and April 2004).  So even though the participation rate for an age group is increasing, the participation rate for a cohort decreases as it moves into an older age group.  This shows we need to follow 1) the trend for each age group, and 2) the number of people in each age group.

25-54 Labor Force vs. Employment; Men vs. Women; Cyclical vs. Structural  - Recovery talk goes on and on. Assuming there is a genuine recovery as opposed to a financial recovery, where would one most likely find evidence? I propose evidence should be apparent in those out of school, yet not retired. More specifically, we should see evidence in the age 25-54 demographic. The participation rate is the percentage of people who are either employed or actively seeking work. Some might accuse me of cherry picking a timeframe on the above chart. OK. Here is a longer-term chart. Civilian Labor Force Participation Rate 1950-Present Women entered the workforce en masse in the 1960s to 1990s. Leveling off is understandable, but why the decline? Reader Tim Wallace dives in further, breaking out women vs. men. The cheerleaders will tout the rise in employment. However, the rise in employment is from the depths of recession hell. In percentage terms, the male participation rate for age group 25-54 is the lowest in history. The female participation rate for age group 25-54 is the lowest in 24 years. Former Fed Char Ben Bernanke stated the unemployment problem is cyclical. I believe unemployment is a demographic-based structural issue. If anyone has any credible evidence that shows the unemployment problem is cyclical in nature, not structural, please send it.

Demographic Trends in the 50-and-Older Work Force: Monthly Update - In my earlier update on demographic trends in employment, I included a chart illustrating the growth (or shrinkage) in six age cohorts since the turn of the century. In this commentary we'll zoom in on the age 50 and older Labor Force Participation Rate (LFPR). But first, let's review the big picture. The overall LFPR is a simple computation: You take the Civilian Labor Force (people age 16 and over employed or seeking employment) and divide it by the Civilian Noninstitutional Population (those 16 and over not in the military and or committed to an institution). The result is the participation rate expressed as a percent.For the larger context, here is a snapshot of the monthly LFPR for age 16 and over stretching back to the Bureau of Labor Statistics' starting point in 1948, the blue line in the chart below, along with the unemployment rate. The overall LFPR peaked in February 2000 at 67.3% and gradually began falling. The rate leveled out from 2004 to 2007, but in 2008, with onset of the Great Recession, the rate began to accelerate. The latest rate is 63.0%, back to a level first seen in 1978. The demography of our aging workforce has been a major contributor to this trend. It might seem intuitive that the participation rate for the older workers would have declined the fastest. But exactly the opposite has been the case. The chart below illustrates the growth of the LFPR for six age 50-plus cohorts since the turn of the century. I've divided them into five-year cohorts from ages 50 through 74 and an open-ended age 75 and older. The pattern is clear: The older the cohort, the greater the growth.

How Has Disability Affected Labor Force Participation? - Atlanta Fed's macroblog - As we noted in a previous macroblog post, from the fourth quarter of 2007 through the end of 2013, the number of people claiming to be out of the labor force for reasons of illness or disability increased almost 3 million (or 23 percent). The previous post also noted that the incidence of reported nonparticipation as a result of disability/illness is concentrated (unsurprisingly) in the age group from about 51 to 60. In the past, we have examined the effects of the aging U.S. population on the labor force participation rate (LFPR). However, we have not yet specifically considered how much the aging of the population alone is responsible for the aforementioned increase in disability as a reason for dropping out of the labor force. The following chart depicts over time the percent (by age group) reporting disability or illness as a reason for not participating in the labor force. Each line represents a different year, with the darkest line being 2013. The chart reveals a long-term trend of rising disability or illness as a reason for labor force nonparticipation for almost every age group. The chart also shows that disability or illness is cited most often among people 51 to 65 years old—the current age of a large segment of the baby boomer cohort. In fact, the proportion of people in this age group increased from 20 percent in 2003 to 25 percent in 2013. How much can the change in demographics during the past decade explain the rise in disability or illness as a reason for not participating in the labor market? The answer seems to be: Not a lot.

Weekly Initial Unemployment Claims decrease to 319,000 - The DOL reports: In the week ending May 3, the advance figure for seasonally adjusted initial claims was 319,000, a decrease of 26,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 344,000 to 345,000. The 4-week moving average was 324,750, an increase of 4,500 from the previous week's revised average. The previous week's average was revised up by 250 from 320,000 to 320,250. There were no special factors impacting this week's initial claims.  The previous week was revised up from 344,000. The following graph shows the 4-week moving average of weekly claims since January 1971.The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 324,750. This was below the consensus forecast of 330,000.  The 4-week average is close to normal levels for an expansion.

New Jobless Claims: A Bit Better Than Forecast - Here is the opening statement from the Department of Labor: In the week ending May 3, the advance figure for seasonally adjusted initial claims was 319,000, a decrease of 26,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 344,000 to 345,000. The 4-week moving average was 324,750, an increase of 4,500 from the previous week's revised average. The previous week's average was revised up by 250 from 320,000 to 320,250.  There were no special factors impacting this week's initial claims. [See full report] Today's seasonally adjusted number at 319K was a bit better than the forecast of 325K. Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the volatility in recent months.

BLS: Jobs Openings at 4.0 million in March  -- From the BLS: Job Openings and Labor Turnover Summary There were 4.0 million job openings on the last business day of March, little changed from 4.1 million in February, the U.S. Bureau of Labor Statistics reported today. ... Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... The number of quits (not seasonally adjusted) increased over the 12 months ending in March for total nonfarm and total private. The quits level was little changed in government.  The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.  The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for March, the most recent employment report was for AprilNote that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings decreased in March to 4.014 million from 4.125 million in February. The number of job openings (yellow) are up 3.5% year-over-year compared to March 2013. Quits increased in March and are up sharply year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

Job Openings Edged Down, but Quitting Rose in March -  The number of job openings ticked down in March, but the share of employed workers who voluntarily left their jobs rose slightly, offering the latest indication of a slowly healing labor market. Job openings decreased to 4.01 million in March from 4.13 million in February, though they were 3.5% above the year-earlier level of 3.87 million, according to Labor Department data released Friday. March was just the fourth month since May 2008 in which job openings stood above 4 million. The number of unemployed workers for every job opening rose slightly to 2.6, up from February’s postrecession low of 2.5. At the depths of the downturn in 2009, there were nearly 6.5 unemployed workers for every opening, and last March, the ratio stood at 3 to 1. Still, current levels are well shy of where they were before the recession, when there were fewer than 2 unemployed workers for every opening. And they are near the levels reached during the peak of the previous recession that began in 2001. The ratio of unemployed job seekers to job openings is now near the average seen from 2002 to 2004, when the unemployment rate averaged 5.8%. “This suggests that there is little slack remaining in labor markets and that future wage growth will be stronger than it was at similar levels of the unemployment rate during past cycles,” 

A Red-Flashing JOLT: Manufacturing Job Openings Signal Recession Dead Ahead -  Contrary to the April nonfarm payroll data, today's JOLTS report was simply ugly. First, the total number of Job openings of 4014K, missed significantly the expected number of 4125K, dropping 111K last month, and the worst since December's 212K tumble when as everyone recalls, the weather was extensively scapegoated as the reason why the economy is not performing as the priced to perfection central planning expects it to.   And now that weather excuses no longer can be abused, the experts finally repeated what we first said in November when we reported that "The Time To Hike Rates Is Now According To The Beveridge Curve" starting with Stone McCarthy:  Typically openings precede payroll gains. Over the past 6 months openings increased by only 116,000. This isn't consistent with the payroll growth of late .... the relationship between openings and the unemployment rate, the co-called Beveridge Curve, suggests that there has been a structural shift in the curve typical of an increase in structural unemployment and perhaps a higher NAIRU than generally thought... Then from Bank of Tokyo: ... JOLTS suggests there is not a whole lot of slack in the economy.... Labor market much closer to being satisfactory, much closer to maximum employment than policymakers acknowledge...

Real Earnings of Private Employees Declined in April - Here is a look at two key numbers in Friday's monthly employment report for April:

  • Average Hourly Earnings
  • Average Weekly Hours

The government has been tracking the data for Production and Nonsupervisory Employees for decades. But coverage of Total Private Employees only dates from March 2006.Let's examine the broader series, which goes back far enough to show the trend since before the Great Recession. I want to look closely at a five-snapshot sequence. First, here is a chart of the Average Hourly Earnings. I've included a linear regression through the data to highlight the trend. Hourly earnings increased at a faster pace through 2008, but the pace slowed from early 2009 onward. But the hourly earnings above are nominal (not adjusted for inflation). Let's look at the same data adjusted for inflation using the Consumer Price Index. Since the government series above is seasonally adjusted, I've used the seasonally adjusted CPI, and I've chained the series to the dollar value of the latest month of hourly wages so that the numbers reflect the purchasing power in today's dollars. As we see, the difference is amazing.Let's add another data series to the mix: Average Hours per Week. About eight months into the recession, hours per week began to fall. The number bottomed a few months before the recession ended and then began increasing a few months after it ended. The next chart multiplies Real Average Hourly Earnings times the Average Hours Per Week for a snapshot of the trend in weekly wages.

Tepid Wage Growth a Potent Sign of a Still-Fragile Economy - The single best gauge of the economic recovery — better than the headline unemployment rate — may be wage growth. So ignore April’s sharp drop in unemployment. Pay no attention to the creation of 288,000 jobs announced on Friday. The most important number in the latest jobs report did not change at all. Average hourly wages for American workers held steady at $24.31 last month. They have increased just 1.9 percent over the previous 12 months. But after adjusting for inflation, real wages have increased by something like 0.5 percent. David G. Blanchflower, an economics professor at Dartmouth College, and Adam S. Posen, president of the Peterson Institute for International Economics, argue in a new paper that the slow pace of wage growth is the best indicator of an incomplete economic recovery. Until wages start rising more quickly, the economy remains far from healthy.

Already happens: Capitalism destroys human labor force and goes to the next phase -- Connecting the dots one can discover the most nightmarish scenarios. Destructive capitalism's next phase is the total substitution of the human labor force with robotic machines, or in other words, the hyper-automatization. There is a process taking place right now, and no one (or nearly no one) knows what would happen after its completion. From a latest article in PressTV:Did you know that there are nearly 102 million working age Americans that do not have a job right now? And 20 percent of all families in the United States do not have a single member that is employed. So how in the world can the government claim that the unemployment rate has “dropped” to '6.3 percent'?”  Well, it all comes down to how you define who is 'unemployed'. For example, last month the government moved another 988,000 Americans into the 'not in the labor force' category.” 102(!) million working age Americans that do not have a job right now? 20%(!) of all families in the US do not have a single member that is employed? Do you find these numbers exaggerated? Maybe not, if you read the following story by the "eye-witness" Yanis Varoufakis.

Homeless and working for Amazon: the trap of the seasonal job cycle -When President Barack Obama visited an Amazon's fulfillment center in Chattanooga, Tennessee last year, he compared it to Santa's workshop. "This is kind of like the North Pole of the south right here," he said. Then speaking of the workers, he added, "Got a bunch of good-looking elves here." What went unsaid and unnoticed was that the Amazon "elves" would not have jobs or prospects after the holidays. Many of the people in those Amazon warehouses were among the long-term unemployed – shuffling from one temporary job to another to another. Due to this unstable employment, number of them have found themselves living in shelters. Working away in warehouses, beyond the pages of Amazon's website, the seasonal workers and the effects that temporary contracts have on their lives are kept out of public's eye and often avoid scrutiny. Andrew Cummins, 43, was one of these elves last year, working north of Chattanooga at an Amazon warehouse in Jeffersonville, Indiana. For three months, he stowed away clothes, working 40 hours a week at $10 an hour. He enjoyed the job and saw it as his ticket out of the Haven House, a shelter where he lives with his wife, Kristen, and stepson. "They had this big hype that they were going to hire on and stuff and that didn't happen. They just worked you until the time was up and then they let everyone go," he says. According to him, about 50 other seasonal workers like him who were hired through Integrity Staffing Solutions – a staffing agency working with Amazon in Jeffersonville – were let go at the same time. The underlying situation at the Chattanooga facility belied the president's speech. Since Amazon opened its warehouse in Jeffersonville, Haven House has been a home to between two and six of its employees at all times,  "The impact is profound. One man was sleeping in a car when he landed his 'permanent job' with Amazon," she says. His good luck didn't last long. "He lost everything all over again. The jobs are good but the temporary status sets people up for failure."

After single moms get laid off, their kids may suffer for years - When single mothers lose their jobs, their children suffer significant negative effects as young adults, according to a new study by researchers at the California Center for Population Research at UCLA. The study focused on two sets of outcomes for the children — educational achievement and social-psychological well-being. Specifically, researchers evaluated whether those in the study had graduated from high school by age 19, attended college by age 21 and graduated from college by age 25; and whether they exhibited symptoms of depression between the ages of 20 and 24 and between the ages of 25 and 29. "The findings are alarming, and they suggest we should be doing more to ensure that these children don't get lost in the shuffle,"  "Through no fault of their own, they appear to be paying years down the line for their mothers' employment issues." ----- A theory in the field of childhood development suggests that socioeconomic adversity can have a particularly damaging long-term effect on children if it occurs in early childhood, but the UCLA study found no negative effects among children who were 5 or younger when their moms lost their jobs. In fact, the negative effects of the mother's job loss were greatest among older children. Children who were between 12 and 17 when the job loss occurred were 40 percent less likely to graduate from high school, 25 percent less likely to attend college and 45 percent less likely to graduate from college, compared with children whose moms remained employed during that time. Children whose mothers lost jobs when the children were between 12 and 17 years old showed significant symptoms of depression in their 20s, but those symptoms were more pronounced in the children's late 20s if their moms were displaced when they were ages 6 to 11.

Real median wages for occupational employment decline -0.6% in 2013* -  Most of the measures of real wages that I have tracked bottomed either in the beginning of 2013 or in late 2012, so this one comes as a bit of nasty surprise.  With an asterisk.  Every year in May, the BLS, in cooperation with state workforce bureaus, compiles a list of median wages for hundreds of occupations.  In the last few years, these have shown that jobs in the 4th quintile, i.e., the lower middle class or working poor, have taken the biggest hit. Like other measures of real wages, they reached a peak at the end of the last recession when gas prices were under $1.50 a gallon and thus mild nominal increase in wages were paired with about a -1% deflation in overall prices.  With gas prices stabilizing in the last 3 years, I certainly expected even small nominal wage increases to lead to an increase in this measure of wages as well.   Not so.  As of May 2013, the median wage in the US was $16.87.  In 2012 it had been $16.71, but adjusting for inflation, that becomes $16.98, which means that real wages were down -0.6%.Now here is why there is an asterisk.  The result is likely due to the way the BLS conducts the survey, as explained in this technical note:  the 2013 results are due to results obtained over 6 surveys from November 2010 through May 2013. That means the survey period coincided almost perfectly with the trough in other wage measures.

Minimum Wage, Labor Force, and Expected Job Losses  - I have previously compared the historical level of minimum wage employment with the relative level of the minimum wage, in an effort to forecast employment loss resulting from the minimum wage.  I had used the Average Hourly Earnings of Production and Non-supervisory Employees series as my average wage basis.  But, over time, this series appears to have lagged other indicators of wage growth, and the effect on my analysis was to create a positive drift in the ratio of minimum wages to average wages.
I have looked at this analysis again, substituting the DOL's Compensation per Hour index.  This doesn't have the negative drift over time that AHETPI does, and it produces a much stronger linear relationship between relative minimum wage and the proportion of the labor force working at or under the minimum wage. This relationship is surprisingly linear, but it doesn't necessarily suggest job losses without a job level to use as a comparison.  Luckily, there are available measures of the number of workers in a non-minimum wage context to compare this with.  One comes from The Economic Policy Institute.  They issued a report on the minimum wage that included a count of the current number of workers earning $10.10 or less - about 21.3 million, or 13.5% of the labor force.  I can compare this number to the number of actual minimum wage workers measured the last time the minimum wage was at that relative level.  If the actual number of workers was significantly less than the current number, that would suggest that the high minimum wage caused some unemployment.

The Minimum Wage Index: Why the GOP's Filibuster Will Hurt Workers - This week, a minority of United States senators blocked a bill to raise the federal minimum wage to $10.10 per hour from coming to a vote, overruling the 54 senators who supported the bill. If the bill had passed, it would have been only the fourth time the minimum wage was raised in the last 30 years. The Republicans who led this filibuster effort will claim a higher minimum wage would hurt the economy, but don’t let them fool you: American workers are the ones left hurting as a result of their actions. Here are the real dollars and cents of the minimum wage debate.

  • $7.25: The current federal minimum wage, established in 2007.
  • 725%: The increase in CEO compensation from 1978 to 2011.
  • $10.86: How much the federal minimum wage would be if it had kept up with inflation over the past 40 years.
  • $21.72: How much the federal minimum wage would be if it had kept up with productivity since 1968.
  • $16.62: The hourly wage needed to meet the basic needs of an average person.
  • $32.19: The hourly wage needed to meet the basic needs of one adult with two children in Philadelphia.
  • $2.13: The federal minimum wage for tipped employees, established in 1991.
  • $5,915,186: Average net worth of U.S. Senators who blocked a vote on the minimum wage.

Mitt Romney Calls for Higher Minimum Wage. Does it Matter? - Mitt Romney, the GOP presidential nominee in 2012, called on Republicans Friday to raise the minimum wage, going against the congressional leadership of his own party. "I think we ought to raise it, because frankly, our party is all about more jobs and better pay, and I think communicating that is important to us," Mr. Romney said on MSNBC’s “Morning Joe.”  In recent days, two other Republican presidential hopefuls from 2012 – former Minnesota Gov. Tim Pawlenty and former Sen. Rick Santorum of Pennsylvania – have also called for a minimum wage hike. The trend may signal that in presidential politics, some Republicans see the issue as a way to soften the party’s image across a broad electorate. On MSNBC, Romney linked his support for a higher minimum wage to the GOP’s effort to reach out to working Americans, including Hispanics. Romney lost the Hispanic vote to President Obama, 71 percent to 27 percent.   “I also believe that key for our party is to be able to convince the people who are in the working population, particularly the Hispanic community, that our party will help them get better jobs and better wages,” Romney said.

Rhode Island Senate Considering “Maximum Wage” Legislation  - Yves Smith - The Rhode Island Senate’s Finance Committee is considering Senate Bill 2796. If you live in Rhode Island, or have friends or family that are state residents, I strongly urge you to have them write or call their state senator in support of the legislation.  Here’s the key provision of the bill. It would amend Chapter 37-2 of the General Laws entitled “State Purchases.” It would incorporate a new section 37-2-81, “Selection of vendors and services based on economic security and pay equality.” Section 37-2-81 empowers and directs the head of the department of administration to establish rules and regulations that give priority in contract and/or subcontract awards to business enterprises whose best-paid executive receives compensation and/or salary equal to thirty-two times or less than the compensation and/or salary paid to its lowest-paid full-time employee. I’ll be the first to admit that this legislation needs to be tightened, since companies could escape the force of the bill by turning low-pay full-time employees into part-time staffers or turing the worst paid “employees” into contractors. But this is an extremely promising start, and people who call the legislature to support the bill can urge that this loophole be closed.

The Inefficiency of Inequality: The debate about inequality inflames many passions because of its moral and philosophical trappings. But inequality is also an economic phenomenon with enormous consequences that we are just beginning to understand. In fact, inequality's impairment of economic growth may dwarf its more apparent social costs. To understand why, consider what happens when economic opportunities are in short supply. When any market has a shortage, not everyone gets the things they want. But who does get them also matters, because it's not always the people who value those things the most.  "The standard analysis of price controls assumes that goods are efficiently allocated, even when there are shortages," . "But if shortages mean that goods are randomly allocated across the consumers that want them, the welfare costs from misallocation may be greater than the undersupply costs." In other words, letting the wrong people buy the scarce goods can be even worse for society than the scarcity itself. This problem, which economists call inefficient allocation, is present in the market for opportunities as well. It's best for the economy when the person best able to exploit an opportunity is the one who gets it. By giving opportunities to these people, we make the economic pie as big as possible. But sometimes, the allocation of opportunity is not determined solely by effort or ability.

Inequality Has Been Going On Forever ... but That Doesn’t Mean It’s Inevitable - Not so long ago, the rich owned a much smaller share of this country’s resources and made a smaller share of its income than many of their predecessors. Perhaps more important, even though inequality has risen abroad, it has done so far less rapidly. Other developed economies (see charts at right), are not more equal simply because they lack success stories, like Warren Buffett, or have fewer investment bankers or hedge-fund executives. Instead, their middle class and poor have enjoyed more aggressively rising incomes, all while their economies grow as rapidly as this country’s in recent years. A more equal society does not mean a less dynamic one. (Germany is notably alone among wealthy European countries in having broad-based income trends nearly as weak as the United States.)Continue reading the main story Inequality, then, is less an inevitability than a choice. Just as societies have conquered many of the challenges of the natural world — making childbirth safe for women or beating back common illnesses that once were frequent killers — we can alter the course of inequality, too.For all of the clarity of Piketty’s historical analysis, I emerged from the book not quite grasping the mechanics of rising inequality. What is it about market economies that typically cause the assets and incomes of the rich to rise more rapidly than those of everyone else? So I called Piketty at his office in Paris, and he agreed to walk me through it.

Hardship Makes a New Home in the Suburbs - Five decades after President Lyndon B. Johnson declared a war on poverty, the nation’s poor are more likely to be found in suburbs like this one than in cities or rural areas, and poverty in suburbs is rising faster than in any other setting in the country. By 2011, there were three million more people living in poverty in suburbs than in inner cities, according to a study released last year by the Brookings Institution. As a result, suburbs are grappling with problems that once seemed alien, issues compounded by a shortage of institutions helping the poor and distances that make it difficult for people to get to jobs and social services even if they can find them. In no place is that more true than California, synonymous with the suburban good life and long a magnet for restless newcomers with big dreams. When taking into account the cost of living, including housing, child care and medical expenses, California has the highest poverty rate in the nation, according to a measure introduced by the Census Bureau in 2011 that considers both government benefits and living costs in different parts of the country. By that measure, roughly nine million people — nearly a quarter of the state’s residents — live in poverty.  Not long ago, the Inland Empire, as the sprawling suburban area east of Los Angeles is known, attracted people hoping to live out that good life. Before the recession, it was booming; housing developments were cropping up all the time, quickly followed by big box stores and strip malls to cater to the new residents.

US Welfare spending up, but help for the neediest down - Although the nation is spending more on welfare than ever before, most of that money is going to better-off families rather than the very poorest, a researcher found. Robert A. Moffitt found that the United States has become more generous over time in supporting low-income families, spending 74 percent more in inflation-adjusted dollars on welfare programs in 2007 than in 1975. But for the 2.5 million single parent families with the absolute lowest levels of earnings, aid dropped 35 percent between 1983 and 2004. During that same period, aid rose 74 percent for those earning slightly more. Moffitt, who is president of the Population Association of America, presented his findings May 2 at the organization's annual meeting in a keynote address titled The Deserving Poor, the Family, and the U.S. Welfare System. The report is slated for winter 2015 publication in the journal Demography. Moffitt researched the 15 largest social safety net programs over the past 30 years and found spending to assist the poor had dramatically increased, especially since the mid-1980s. He also examined who was getting that money and discovered three major trends. First, there was the marked shift away from those earning the least money, as little as 50 percent of the federal poverty line, to those with incomes as much as 200 percent above the poverty line. That means in 2014, a family of four earning $11,925 a year likely got less aid than a same-sized family earning $47,700.Next, he found more assistance going to the elderly and the disabled and less to the non-aged and non-disabled. And finally he tracked a spending shift to married parent families, away from single parent families.

Poverty is not “complex” - Poverty is a social issue that usually attracts the label ‘tough problem’. Sometimes, when a bit of flair is in order, it is labelled ‘complex’ or ‘multi-dimensional’. This strikes me as a major cop out. Reducing or eliminating poverty is not ‘tough’ in any technical sense. The ‘tough’ part is our moral baggage – the distorted moral lens through which we see the problem – which provides an excuse not to make the necessary sacrifices required for change.For example, it is simple enough to imagine a developed country without poverty. Even using a purely relative metric of poverty that is a direct function of the median income (such as 30% of median income), poverty can be eliminated through appropriate redistribution of wealth. In case you are still skeptical of the simplicity of the solution, imagine for a minute that you are the head of a wealthy household. One of your adult children has, for some reason, flittered away their life savings, been kicked out of their apartment, and has no where to turn.What do you do?You invite them home. House them. Feed them. Clothe them. Give them money to help them start rebuilding their life. You probably even call in favours to help them find work.  Maybe this solution is temporary. Maybe this child of yours never seems to grow up. They get caught up with the wrong crowd again, and two years later you are back to square one. You invite them home. Feed them. Clothe them. Give them money.  If it makes sense to do this for your family, why doesn’t it make sense to do it more generally for fellow human beings?

Pope demands 'legitimate redistribution' of wealth - Pope Francis called Friday for governments to redistribute wealth to the poor in a new spirit of generosity to help curb the "economy of exclusion" that is taking hold today. Francis made the appeal during a speech to U.N. Secretary-General Ban Ki-moon and the heads of major U.N. agencies who met in Rome this week. Latin America's first pope has frequently lashed out at the injustices of capitalism and the global economic system that excludes so much of humanity, though his predecessors have voiced similar concerns. On Friday, Francis called for the United Nations to promote a "worldwide ethical mobilization" of solidarity with the poor in a new spirit of generosity. He said a more equal form of economic progress can be had through "the legitimate redistribution of economic benefits by the state, as well as indispensable cooperation between the private sector and civil society." Francis voiced a similar message to the World Economic Forum in January and in his apostolic exhortation "The Joy of the Gospel." That document, which denounced trickle-down economic theories as unproven and naive, provoked accusations in the U.S. that he was a Marxist.

I’m Mr. Potato Head… -- I know, it seems goofy to fight about potatoes, but Catherine Rampell makes very important points about an on-going dust-up involving white potatoes and WIC, a nutritional support program for low-income pregnant women, new mothers, and infants.  If this debate bounces the wrong way, it will represent a serious and potentially far-reaching defeat for nutritional science over special interest bucks. The Institute of Medicine provides the program with unbiased information on what low-income families are best off consuming with their WIC resources.The Institute found that starchy foods like white potatoes, while nutritious, were already well-represented in poor families’ diets. (Sweet potatoes and yams were not, so they are available through WIC.) Needless to say, the tuber lobby is unhappy about this. The amount of money at stake through WIC is relatively tiny — small potatoes, you might say…but spud farmers believe excluding white potatoes from WIC is bad for marketing and therefore gives the entire white potato industry a black eye.Last week 20 senators sent an angry letter to the Agriculture Department secretary, demanding an immediate end to anti-tater bigotry, and Sen. Susan Collins (R-Maine, where the top agricultural commodity is potatoes) reportedly will soon offer a legislative amendment mandating the inclusion of white potatoes in WIC… Pediatrics professor Irwin Redlener efficiently summarized the threat: “Once the door is open to undermine the program this way, by putting it in the hands of the political machinery rather than scientific recommendations, it will be very hard to reverse it.”

USA: The World's Newest Third World Nation  -  And the newest third-world country is....America! That's right. America looks a lot more like a third-world nation than the wealthiest country in the world. As CJ Werleman points out over at Alternet, while America is the wealthiest nation in the world, and has the most billionaires in the world, not a single U.S. city ranks among the world's most livable cities. Meanwhile, despite our nation's vast wealth, 14.5 percent of U.S. households were "food insecure" as of 2010, and as of 2011, 1.5 million American household were struggling with "extreme poverty." If you want even more proof that America is in the steady decline to third-world status, take a look at the American middle-class today. Between 1979 and 2012, the percentage increase in salary growth for the median American worker was just 5 percent, while growth for millionaire and billionaire executives was off the charts.As result, the share of the nation's income going to the middle-class has been in a near nosedive for the past three decades.

Where Are America's 49 Million Hungry - An Interactive Map - As of 2012, the most recent year for which data are available, there were about 49 million Americans who, sadly, describe themselves as "food insecure," meaning they have limited access to sufficient amounts of food, according to the U.S. Department of Agriculture. Interviews with several food banks around the country suggest things haven't really improved since then. A new report from the hunger relief charity 'Feeding America' throws the nation’s struggle with hunger into an even starker light. The report, titled "Map the Meal Gap 2014," breaks the USDA’s data down county by county, giving a more nuanced picture of food insecurity. As the Interactive report below reveals, HuffPo notes that there are 16 counties in the U.S. with more than 100,000 "food insecure" children -- a number you might expect to see in a developing country rather than the world’s wealthiest nation.

Declining Business Dynamism in the United States: A Look at States and Metros | Brookings Institution: Business dynamism is the process by which firms continually are born, fail, expand, and contract, as some jobs are created, others are destroyed, and others still are turned over. Research has firmly established that this dynamic process is vital to productivity and sustained economic growth. Entrepreneurs play a critical role in this process, and in net job creation. But recent research shows that dynamism is slowing down. Business churning and new firm formations have been on a persistent decline during the last few decades, and the pace of net job creation has been subdued. This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech. Here, the geographic aspects of business dynamism are analyzed. In particular, we look at how these trends have applied to the states and metropolitan areas throughout the United States. In short, we confirm that the previously documented declines in business dynamism in the U.S. overall are a pervasive force throughout the country geographically. In fact, we show that dynamism has declined in all fifty states and in all but a handful of the more than three hundred and sixty U.S. metropolitan areas during the last three decades. Moreover, the performance of business dynamism across the states and metros has become increasingly similar over time. In other words, the national decline in business dynamism has been a widely shared experience.

State Taxes Have a Negligible Impact on Interstate Moves - CBPP - Differences in tax levels among states have little to no effect on whether and where people move, contrary to claims by some conservative economists and elected officials.  For decades, Americans have been moving away from the Northeast, the industrial Midwest, and the Great Plains to most of the southern and southwestern states, regardless of overall tax levels or the presence of an income tax in any of these states.  They’ve moved in large part for employment opportunities in the Sunbelt states and, secondarily, for less expensive housing, and, for many retirees, a warmer, snow-free climate.  Accordingly, policymakers in states like Kansas, Michigan, Nebraska, Ohio, and Wisconsin that have already cut or are considering cutting their income taxes should harbor no illusions that such a move will stem — let alone reverse — their states’ longstanding net out-migration trends.  To the contrary; if deep tax cuts result in significant deterioration in education, public safety, parks, roads, and other critical services and infrastructure, these states will render themselves less — not more — desirable places to live and raise a family. To be sure, some individuals relocate because they think their taxes are too high or take state and local tax levels into account in deciding where to live.  Nonetheless, there is overwhelming evidence that those cases are sufficiently rare that they should not drive state tax policy formulation.  For states, the implications are two-fold:

  • First, policymakers in most relatively high-tax states still have considerable room to increase income taxes on the affluent before they should worry about the potential effects on migration.
  • Second, and more important in the current policy environment, states should not cut their income taxes with the expectation that they will thereby significantly slow — let alone reverse — the flow of residents leaving their state.  Indeed, the opposite may well be true.  Such cuts are more likely to reduce than enhance a state’s attractiveness as a place to live by leading to deterioration in the quality of critical public services.

Map: State and Local Individual Income Tax Collections Per Capita - States depend on a lot of sources for tax revenue, but one of the most common are individual income taxes. This week’s map shows state and local combined individual income tax collections per person in 2011 (the latest data available). Click on the map to enlarge it.

Which States Are Givers and Which Are Takers? - For my money, one of the more interesting maps appearing recently came from the personal-finance website Wallet Hub. Analysts there set out to determine how states compare in terms of their reliance on federal funding. The states deemed "most dependent" by the analysis are bright red on the map, those "least dependent" are bright green. You can move your cursor around on the map to see how each state ranks. (There were some ties.)The Wallet Hub analysts essentially asked how much each state receives back as a return on its federal income-tax investment. They compared the 50 states and the District of Columbia on three metrics: 1) federal spending per capita compared with every dollar paid in federal income taxes; 2) the percentage of a state’s annual revenue that comes from federal funding; and 3) the number of federal employees per capita. The third measure received only half the weight of each of the others in the calculation. What the resulting map shows is that the most “dependent states,” as measured by the composite score, are Mississippi and New Mexico, each of which gets back about $3 in federal spending for every dollar they send to the federal treasury in taxes. Alabama and Louisiana are close behind. If you look only at the first measure—how much the federal government spends per person in each state compared with the amount its citizens pay in federal income taxes—other states stand out, particularly South Carolina: The Palmetto State receives $7.87 back from Washington for every $1 its citizens pay in federal tax. This bar chart, made from Wallet Hub's data, reveals the sharp discrepancies among states on that measure.

Report: California faces $340B in debt —A new report says California state government faces $340 billion in debts, or more than $8,500 for each resident. The nonpartisan Legislative Analyst's Office said Wednesday that the state should set priorities for paying down its key long-term liabilities. It first should address the $74 billion shortfall in the teachers' retirement system, a debt that could cost $5 billion a year to resolve. Paying down the $65 billion shortfall in health benefits given to retired state employees and their dependents should come next. That could cost the state nearly $2 billion a year. The report comes a month before the Legislature must send the state budget to the governor. It feeds debates over whether California should spend or save its budget surplus and how to create a rainy day fund.

Sen. Introduces Bill To Test Out Taxing Motorists For Every Mile They Drive - The California Legislature is looking at a voluntary program that would tax motorists for every mile they drive.KCAL9’s Bobby Kaple reports that Sen. Mark DeSaulnier, D-Concord, introduced a bill to test out the vehicle miles traveled (VMT) tax because the state’s gas tax was no longer bringing in the revenue it used to due to people driving more fuel efficient vehicles.The program is modeled after ones in Oregon and Washington.“We want to do as Washington and Oregon have done in a much bigger state with much longer commutes…to make sure that we find out whether it would work, whether the public would like it or not,” DeSaulnier said.It’s unknown how much the tax would be, but Oregon currently charges its volunteers 1.5 cents per mile.“All of those things would be determined. We would let the agency determine that because this would be a voluntary program,” DeSaulnier said.Southland commuters were not thrilled about the idea of a VMT tax.“I bought a hybrid…one, because of my drive. I’m very opposed. I drive to Brentwood every day from Burbank, and I am already paying more than I should be,” Carmen Smith said.“So if we go on vacation and I drive up to Mammoth, that’s 600 miles. We’re being taxed on vacations?”

With Unlimited Financial Campaign Contributions, One Robber Baron Can Control a State --  If you want to see how just one Wall Street robber baron can squash democracy for the sake of greed and privatization, just look to the Missouri legislature. According to The Progressive magazine, that's where Rex Sinquefield, a man who made his fortune off of trading in index funds, is spending millions of dollars to forward his personal agenda. Sinquefield has combined personal political giving with backing nonprofit organizations, much like the Koch brothers have done on the national level. The Progressive notes: "Sinquefield and his wife spent more than $28 million in disclosed donations in state elections since 2007, plus nearly $2 million more in disclosed donations in federal elections since 2006, for a total of at least $30 million." That total does not include the indirect millions spent backing third-party organizations, as The Progressive details: The jewel in [Sinquefield's] privatization crown is the Missouri-based Show-Me Institute, a rightwing think tank that receives just shy of $1 million every year from the Sinquefield Charitable Foundation. Its tag line is a mouthful: "Advancing Liberty with Responsibility by Promoting Market Solutions for Missouri Public Policy."

State Executioners: Untrained, Incompetent, and “Complete Idiots” - Last week's botched execution of Clayton Lockett in Oklahoma has heightened the debate over lethal injection. The United States has encountered a shortage of the drugs historically used in capital punishment as pharmaceutical companies have largely refused to make them, export them, or sell them to prisons for use in executions. Death row inmates have filed dozens of challenges to the lethal injection protocols that states have sought to keep secret. Meanwhile, states are trying ever more desperate measures to procure the old drugs or cook up new cocktails to try on inmates. But as Lockett's torturous execution showed, the drugs are only part of the problem. In his case, prison staff apparently failed to properly insert the IV into his femoral artery—a procedure that requires professional medical skills—and the drugs were injected into soft tissue rather than the bloodstream, leaving him writhing in pain and forcing officials to halt the execution. (He ended up dying of a heart attack, anyway.) Historically, lethal injection has been plagued with problems just like those that occurred in Lockett's case, and they are due in large part to the incompetence of the people charged with administering the deadly drugs. Physicians have mostly left the field of capital punishment; the American Medical Association and other professional groups consider it highly unethical for doctors to assist with executions. As a result, the people willing to do the dirty work aren't always at the top of their fields, or even specifically trained in the jobs they're supposed to do.

Will Detroit Be The First Major Chinese City In The United States? - Is Detroit destined to become a Chinese city?  Chinese homebuyers and Chinese businesses are starting to flood into the Motor City, and the governor of Michigan is greatly encouraging this.  In fact, he has formally asked the Obama administration for 50,000 special federal immigration visas to encourage even more immigration from China and elsewhere. So will Detroit be the first major city in the United States to be dominated by China?  It could happen.  Once upon a time, Detroit was the greatest manufacturing city in the history of the world and it had the highest per capita income in the entire country.  But now it is a rotting, decaying, bankrupt hellhole that is in desperate need of a savior, and Michigan Governor Rick Snyder appears to be fully convinced that China can be that savior.

The Tale of Two Schools - Fieldston and University Heights are in the same borough but worlds apart. How much understanding between their students can a well-told story bring? University Heights High School is on St. Anns Avenue in the South Bronx, which is part of the poorest congressional district in America, according to the Census Bureau. Six miles away is the Ethical Culture Fieldston School, with its arched stone entrance and celebrities’ children and $43,000-a-year tuition. Eight years ago, as part of a program called Classroom Connections, students from the schools began exchanging letters, which eventually led to a small group from University Heights visiting Fieldston for a day. “At the time in our school, these were tough street kids,” said Lisa Greenbaum, who has been teaching English literature at University Heights for 10 years. “They walked into Fieldston, and they were just overwhelmed. They couldn’t imagine that this was just minutes from where they lived, and they never even knew about it. One kid ran crying off campus. It made them so disheartened about their own circumstances.”

75 per cent of Americans want to see climate change taught in schools, and four more graphs -- A new study reveals significant gaps in many north Americans' knowledge about climate change. But the vast majority want to know much more, and 75 per cent want to see climate change taught in schools according to new research from the Yale Forum on Climate Change Communication. We've picked five of the most interesting graphs from the research. The study also revealed many Americans don't have a very high opinion of their own knowledge about climate change. Only one in 10 say they are "very well informed" about how the climate system works or the different causes, consequences or potential solutions to climate change. 51 to 52 per cent say they are "fairly well informed".  But a large majority - 75 per cent - say they would like to know more and, as the graph below shows, 75 per cent say schools should teach children about climate change. 68 per cent say they would welcome a national education programme to teach Americans about the issue.

Chicago Teachers Union passes resolution opposing Common Core - The Chicago Teachers’ Union House of Delegates has passed a resolution opposing use of the Common Core State Standards in teaching and testing, and it plans to lobby the Illinois Board of Education to reverse approval of the Core and ask its parent union, the American Federation of Teachers, to consider it at its upcoming convention. AFT President Randi Weingarten has been a longtime supporter of the standards, but she has called for revisions of the early childhood standards, calling them developmentally inappropriate, and has blasted the implementation of the initiative. She has also pushed for a delay in the use of new Core-aligned student standardized tests as part of the evaluation of teachers. The AFT, however, has over the last several years accepted millions of dollars in funding from the Gates Foundation to support the Core, though Weingarten recently announced that the AFT would no longer accept Gates money for its Innovation Fund in a bow to growing criticism of the standards initiative. Chicago union President Karen Lewis said in a statement: “I agree with educators and parents from across the country, the Common Core mandate represents an overreach of federal power into personal privacy as well as into state educational autonomy. Common Core eliminates creativity in the classroom and impedes collaboration. We also know that high-stakes standardized testing is designed to rank and sort our children and it contributes significantly to racial discrimination and the achievement gap among students in America’s schools.”

Worst of DRM set to infest physical law school casebooks -- Imagine shelling out $200 for a law school casebook only to learn at the end of the class that you don't actually own the book; that you are contractually obligated to return it to the publisher. One publisher, AspenLaw, is not only attempting to foist this raw deal upon law professors and their students, it has the audacity to claim that the arrangement is an improvement over the old-fashioned way of selling and buying books. A number of professors, as well as the Electronic Frontier Foundation, beg to differ and are calling foul on AspenLaw.

After Setbacks, Online Courses Are Rethought - A study of a million users of massive open online courses, known as MOOCs, released this month by the University of Pennsylvania Graduate School of Education found that, on average, only about half of those who registered for a course ever viewed a lecture, and only about 4 percent completed the courses.  Much of the hope — and hype — surrounding MOOCs has focused on the promise of courses for students in poor countries with little access to higher education. But a separate survey from the University of Pennsylvania released last month found that about 80 percent of those taking the university’s MOOCs had already earned a degree of some kind.   And perhaps the most publicized MOOC experiment, at San Jose State University, has turned into a flop. It was a partnership announced with great fanfare at a January news conference featuring Gov. Jerry Brown of California, a strong backer of online education.  Mr. Thrun, who had been unhappy with the low completion rates in free MOOCs, hoped to increase them by hiring online mentors to help students stick with the classes. And the university, in the heart of Silicon Valley, hoped to show its leadership in online learning, and to reach more students.  But the pilot classes, of about 100 people each, failed. Despite access to the Udacity mentors, the online students last spring — including many from a charter high school in Oakland — did worse than those who took the classes on campus. In the algebra class, fewer than a quarter of the students — and only 12 percent of the high school students — earned a passing grade.

The Coming Big Data Education Revolution -  As the leader of the big data revolution, Google gathers information through clicks on the Internet and uses this information to personalize advertising to individual users. Academia will use the same model in the learning process to customize courses right down to the level of the individual. Some companies, such as the nonprofit testing firm ETS, are already harnessing data to develop predetermined learning trees to track certain responses to questions that imply mastery of specific aspects of material, thus allowing educators to organize assignments based on those answers. Imagine how such knowledge can be used to give instructors the necessary intelligence to directly address a student's learning style or deficits. In this way, big data can amplify factors that contribute to student success – personalized courses, the instructor-student connection and a wired sense of community – despite being in the detached online learning environment. I offer up this different view of the technology revolution ahead because too many people in higher education and outside of it, including some of the New York Times' columnists, consider MOOCs to be a revolutionary rather than evolutionary step in academia. Most certainly, MOOCs are a great tool for sharing large qualities of information via the Web, but they are little more than virtual textbooks when it comes to learning. They broadcast information, but they don't teach.

Higher Ed Cuts, Tuition Hikes Worsen Low-Income Students’ Struggles State cuts to higher education have led colleges and universities to make deep cuts to educational or other services, hike tuition sharply, or both, as we explain in our recently released paper.  These tuition increases are hitting low-income students particularly hard, lessening their choices of schools, adding to their debt burdens — and likely deterring some from enrolling in school altogether. Annual published tuition — the “sticker price” — at four-year public colleges has risen by $1,936, or 28 percent, since the 2007-08 school year, after adjusting for inflation.  This has accelerated longer-term trends of reducing college affordability and shifting costs from states to students.  These trends have exacerbated struggles for students from low-income families, in several ways. Tuition increases are likely deterring low-income students, in particular, from enrolling.  College cost increases have the biggest impact on students from low-income families, research suggests.  Pronounced gaps in college enrollment among higher- and lower-income youth already exist, even among prospective students of similar ability (see chart).  Rapidly rising costs at public colleges and universities may widen these gaps further.

The Shocking Increase Of College Tuition By State -  It is common knowledge that in the hierarchy of bubbles, not even the stock market comes close to the student loan bubble. And while we have previously reported that a shocking amount of the loan proceeds are used to fund anything but tuition payments, a major portion of the funding does manage to find itself to its intended recipient: paying the college tuition bill. Which means that with student debt being so easily accessible anyone can use (and abuse), it gives colleges ample room to hike tuition as much as they see fit: after all students are merely a pass-through vehicle designed to get funding from point A, the Federal Government to point B, the college treasury account. It should thus come as no surprise that in a world in which colleges can hike tuition by any amount they choose, and promptly be paid courtesy of the federal government, and with endless amounts of propaganda whispering every day in the ears of impressionable potential students the only way they can get a well-paying job is to have a college diploma there is no shortage of applicants willing to take on any amount of debt to make sure this cycle continues, that soaring tuition costs are one of the few items not even the BLS can hedonically adjust to appear disinflationary.  But while we know what the answer looks like at the Federal level, the question arises just how does this price shock look at the state level?   The answer, in a nutshell, is presented in the chart below which shows the state by state, inflation-adjusted breakdown how much the average tutition has changed in the period between 2008 and 2014.

Is It Still Worth Going to College? - San Fran Fed Economic Letter - Earning a four-year college degree remains a worthwhile investment for the average student. Data from U.S. workers show that the benefits of college in terms of higher earnings far outweigh the costs of a degree, measured as tuition plus wages lost while attending school. The average college graduate paying annual tuition of about $20,000 can recoup the costs of schooling by age 40. After that, the difference between earnings continues such that the average college graduate earns over $800,000 more than the average high school graduate by retirement age.

San Fran Fed Asks "Is It Still Worth Going To College?" - Its findings in a nutshell: Earning a four-year college degree remains a worthwhile investment for the average student. Data from U.S. workers show that the benefits of college in terms of higher earnings far outweigh the costs of a degree, measured as tuition plus wages lost while attending school. The average college graduate paying annual tuition of about $20,000 can recoup the costs of schooling by age 40. After that, the difference between earnings continues such that the average college graduate earns over $800,000 more than the average high school graduate by retirement age. ... Although there are stories of people who skipped college and achieved financial success, for most Americans the path to higher future earnings involves a four-year college degree. We show that the value of a college degree remains high, and the average college graduate can recover the costs of attending in less than 20 years. Once the investment is paid for, it continues to pay dividends through the rest of the worker’s life, leaving college graduates with substantially higher lifetime earnings than their peers with a high school degree. These findings suggest that redoubling the efforts to make college more accessible would be time and money well spent.

Student Loan Interest Rates Rise for 2014-2015 School Year - Students will pay more to borrow from the U.S. government for college costs this coming school year, with the interest rate on undergraduate Stafford loans climbing to 4.66 percent. Interest rates for most federal student loans are pegged to the yield on the U.S. 10-year note sold at the Treasury’s auction prior to June 1. This year’s sale was held today, with the yield on the note set at 2.61 percent. When Congress first tied student loans to the Treasury note last year, undergraduate Stafford loans, the most-widely borrowed, carried a rate of 3.86 percent, almost 3 percentage points less than in the two previous years, because the 10-year note yield was a low 1.81 percent. The yield had been driven down by Federal Reserve purchases of the note to keep borrowing costs down and stimulate the economy. “It was a given that they’d start increasing,”  Treasury yields “had nowhere to go but up.” The rate increase means undergraduate Stafford borrowers will pay about $46 more per year for each $10,000 borrowed based on a 10-year repayment period, compared with the current year’s rate. Interest rates are fixed for the life of federal education loans, though students take out a separate loan for each school year.

Student Debt and a Broken Financial System - House of Debt -  When the Class of 2009 entered college in 2005, they had good reason to be optimistic. The economy appeared to be healthy, and a college degree commanded higher wages. College, of course, is expensive. And almost 2 out of 3 students entering college took on some debt. They took on that debt believing that it would be easy to pay back given the strong market for those with a college degree. But then the biggest recession in 80 years hit the United States, leading to a much worse job market for college graduates. Here is the unemployment rate as of October for college graduates who just graduated, by year from 2007 to 2011. The Class of 2009 had an unemployment rate of 18% — twice as bad as the Class of 2007 had when they graduated. The employment to population ratio also shows how bad the market was: This was horrible luck for students graduating in 2009 and 2010 — in some sense they were being punished for being born 22 years earlier in 1987 or 1988. You might guess that the punishment was short-lived — eventually these students would find good jobs once the economy recovers, right? Wrong. Research shows that there are long-run, persistent negative effects of graduating from college in the midst of a severe recession. As mentioned above, many of the students in the Class of 2009 took on student debt. What happened to those interest payments? Unfortunately, the debt contracts taken on by the students didn’t care what the economy looked like upon graduation. Students had to either make the payments, or default and suffer the consequences. Does this make any economic sense? The financial system is supposed to help the most vulnerable members of society insure themselves against unforeseen risks. But in this case, the student debt concentrated risk on young Americans trying to get ahead with a college degree.

Americans seek relief from student loan debt: - Massachusetts Sen. Elizabeth Warren introduced a bill Tuesday that for the first time would let Americans refinance student loans at lower interest rates. U.S. debt on student loans has become an albatross for millions. Student loans have become an economic albatross that has many Americans begging for relief. In California, Rosemary Anderson's student loans have landed her deep in financial trouble. "I don't even think I could've gone to a loan shark and had something like that happen,"  The $65,000 she originally borrowed has ballooned, inflated by 8 percent interest rates that she's not allowed to refinance. "So this represents the total amount of my federal student loans I have: $123,317.35," she said. "These are federal government loans. These are not loans I have through Wells Fargo or Bank of America. This was federal aid that was affording me to be able to get my education that are now punishing me for getting that education," Anderson said. In the past 10 years, student debt has tripled in the United States, from $364 billion to more than $1.2 trillion. That's more than Americans owe on credit cards or auto lines. "It's just a problem that keeps getting bigger and bigger and bigger," said Warren. The Massachusetts Democrat introduced the legislation to allow refinancing. "With interest rates low, homeowners have been refinancing their mortgages. But the federal government does not let people who holding student loans refinance down to the lower interest rates available. This bill would say yes, they can refinance," Warren said. "Student loan debt is crushing people in this country," she said. "It's preventing the economy from moving forward."

Early Tap of 401(k) Replaces Homes as American Piggy Bank - It’s a small number that’s part of a much larger picture: The Internal Revenue Service collected $5.7 billion in 2011 from penalties, meaning that Americans took out about $57 billion from retirement funds before they were supposed to.  The median size of a 401(k) is $24,400 as of March 31, with people older than 55 having $65,300, according to Fidelity Investments. Those funds can disappear quickly in retirement, and the early withdrawals indicate that the coming retirement crisis could be even more acute than expected.Adjusted for inflation, the government collects 37 percent more money from early-withdrawal penalties than it did in 2003. Meanwhile, the amount of home-equity loans outstanding was $704 billion in 2013, down 38 percent from the 2007 peak, according to Federal Reserve data. “They didn’t have access to the home equity that they had in the past,” Cramer said. “And families looked around for what was left and they actually drained the value from the 401(k).” In 2011, 5.7 million tax returns, or about 4 percent of all U.S. households, reported paying penalties on early withdrawals. The government collected more than enough money from these penalties to fund the National Oceanic and Atmospheric Administration.

Americans Raid 401(k)s, Replacing Home Equity Withdrawals as Way to Make Ends Meet - Yves Smith  - It’s been creepy to see economists and the financial media cheering the re-levering by American households as a sign that they economy is on the mend and consumers are regaining their will to shop. But ordinary Americans took huge balance sheet hits in the crisis: the loss of home equity, which only in some markets has come all the way back; job losses and pay and hours reductions, which led many to run down savings as they readjusted; declines in stock market portfolios; lower income thanks to ZIRP for retirees and other income-oriented investors.  While the top wealthy are borrowing, in contrast to the behavior of the rich predecessors, on the other end of the spectrum, many are still struggling for survival. The latest job report showed that the number of long-term unemployed, reflected in the level of people who’ve given up looking for work and are counted as no longer in the workforce, only continues to rise. Food stamps and extended unemployment benefits have been cut. And with soup kitchens under stress too, one wonders how people who are in such dire financial straits manage to get by.Before the crisis, if someone was hit with a financial emergency, like an accident or sudden job loss, those who had houses could often draw on home equity. With that piggybank depleted or non-existent, the last-ditch financial fallback is accessing retirement savings.  And the alternative is even more costly. Withdrawing money from a 401 (k) before age 59 1/2 incurs a 10% penalty. On top of that, the taxpayer also has to pay income taxes on the withdrawal.  A Bloomberg story gives the sobering details of how prevalent 401 (k) withdrawals have become. For the latest year in which data is available, 2011, 4% of all households paid early withdrawal penalties. A Federal Reserve study found that 9.3% of taxpayers with retirement accounts paid early withdrawal penalties, an increase from 7.9% in 2004.

In which I am a semi-wet blanket about that 401(k) story - By now you've probably all read at a bunch of blogs about how IRS data shows that Americans increased their borrowing from or cashed out their 401(k)'s in recent years, all of which feature these graphs: A truthful headline for these graphs would be "During and right after the Great Recession, Americans increasingly tapped their 401(k)'s."  While the original Bloomberg piece was fairly careful, some of the later iterations have sloppily or ambiguously used the present tense (see, e.g., Barry Ritholtz, “Tapping your 401(k)?”).  Which is simply not correct.  This data is in no way contemporaneous data. The most recent reading is THREE YEARS OLD. And the most recent, three-year-old, data, shows a significant improvement from the four-year- old data. It’s also worth pointing out that the series isn’t population adjusted, which is a non-trvial difference, and the 38% increase in the number of IRS returns incurring the penatly is faiirly consistent to the ~60% increase in the unemployment rate from 6% to 10%. What the graphs show is that those borrowing from or cashing out their 401(k)'s went up as unemployment went up, peaked about when unemployment peaked, and came down in 2011 as unemployment started to recede. We have absolutely no idea what has happened in the last 3 years, and furthermore it is a reasonable bet that 401(k)’s were raided less and less and the unemployment rate continued to go down.

Kicking the pension can down the road -  Tucked away in the transportation bill passed almost two years ago is a small provision that has little to do with transportation. The bill is called Moving Ahead for Progress in the 21st Century Act or MAP-21 and buried deep within it is a law that deals with defined benefits corporate pension plans. .. MAP-21 modified the method for determining the interest rates used to determine the actuarial value of benefits earned under the plan, providing for a 25-year average of interest rates to be taken into account in addition to a 2-year average ...For those of us who grew up on the concept of "discounted cashflows" this law is particularly absurd. The basics of accounting tell us that the net worth of any long-only portfolio is the market value of its assets less the present value of its liabilities. And the present value of liabilities should be determined by discounting future liabilities with current interest rates.  But here comes MAP-21 to the rescue. Let's allow pensions to use interest rates averaged over the past 25 years to discount the liabilities. That makes the discount rates much higher and the discounted liabilities much lower. It's not mark to market but rather mark to the past 25 years. Magic. All of a sudden companies don't have to pony up large amounts to keep these pensions afloat.  It's all interesting in theory, but what does it look like in practice? Here is a 2013 statement from a mid-size US company that discloses the difference between the traditional discount methodology and the new MAP-21.The value of this pension plan is negative $219 million (funding shortfall), but under MAP-21 it's only $34 million under water. It's like telling a homeowner that her house doesn't really have negative equity because we've devised a clever way of discounting the mortgage. However it's the law of the land, and defunct corporate pensions will stay underfunded for years

Leaked Documents Show How Blackstone Fleeces Taxpayers Via Public Pension Funds - The following story by David Sirota at PandoDaily is simply excellent. It zeros in on the secretive and rapidly expanding relationship between private equity firms and the public pensions that invest in them. It shows a crony capitalist love affair greased by lobbyist influence peddlers known as “placement agents”, as well as non-public agreements between PE firms and public pensions chock full of conflicts of interest, extremely high fees and underperformance. Unbelievably, in many instances the trustees of the public pensions are not allowed to know what funds the “fund of funds” invest in. This makes due diligence impossible, and in one particularly egregious example it led the Kentucky Retirement Systems to unknowingly invest in SAC Capital despite the fact it was under SEC investigation at the time.The chief villain in this article will be no stranger to readers of this site. It is Blackstone...

Kentucky Investment in Blackstone Fund of Funds Shows Desperation and Cluelessness of Some Public Pension Funds - Yves Smith -  One of the easiest types of investors for Wall Street sharpies to fleece are public pension funds that have a large shortfall they are desperate to make up. Even seasoned traders can all too easily start putting on desperate wagers to try to earn their way out of a hole, or worse, cook the books and try to make the trading profits later. Public pension funds as a groups aren’t terribly savvy; even though the California giant CalPERS has been stonewalling us on disclosure, it’s generally seen as competent, which puts it way ahead of most of its peers.  As a new article by David Sirota in Pando Daily shows, by contrast, the Kentucky Retirement System, which manages $14.5 billion, is an obvious lamb led to slaughter. Sirota’s source is Chris Tobe, an SEC whistleblower, former trustee of KRS, and author of Kentucky Fried Pensions, a book about the sorry condition of the Kentucky pension system. KRS is one of the most severely underfunded retirement systems in the United States, with only 23% of its liabilities funded. As a result, the pension fund is up to its eyeballs in a “reaching for return” investment strategy, which means it has gone full bore into “alternative investments,” a fancy name for high risk, high return, and somewhat to very illiquid strategies like hedge funds, private equity funds, and real estate funds. Kentucky has a whopping 34% of its total funds invested in alternative investments versus the average across the pension fund industry of 22%. That allocation has increased from a mere 7% 12 years ago. Kentucky has not done at all well with this approach. Despite taking much higher risks, its returns have lagged that of its peers. The pension fund earned only 12% last year, compared to the 16% for public pension funds overall. Tobe argues that one of the reasons is its fondness for high fee products by Blackstone, which also has particularly powerful political contacts in the state.

Forever Young? America Stays Relatively Youthful Even as World Population Ages -- That the U.S. population is aging rapidly is no mystery, but that masks an important fact: America will remain a lot younger than many countries in the developed world.  Roughly 1 in 5 Americans (about 21%) will be 65 years old and up by 2050, compared with just 13% in 2010 and less than 10% in 1970, according to a new U.S. Census Bureau report released Tuesday. These look like eye-popping demographic changes, but they seem less so when you compare them to what’s happening in places like Japan, Germany, Italy and even China.  In 2050, around 40% of Japan’s population will be 65-plus, up from 24% in 2012. In Germany and Italy, over 30% will be 65+ (up from about 21% for both). Spain and Poland are in the same ballpark (31%, 32%). Meanwhile, similar figures for Canada and China are 26% (up from 16%) and 27% (up from 9%). That’s right: By 2050, China, whose 1.3 billion people are relatively young now, will have a larger share of its population over 65 than the U.S. will.America’s graying population has had economists wringing their hands for years, with many worried more older people will mean reduced aggregate demand (i.e., less spending), less saving (as old folks draw down wealth to finance retirements), lower economic output and slower growth. Unless the U.S. fertility rate jumps, there will also, over time, be fewer working-age Americans to pay the taxes needed to finance social programs like Social Security and Medicare that support the elderly.

Estimated Elevated Mortality Rates Associated with Medicaid Opt-Outs - A number of states have decided to opt out of expanding Medicaid, despite the fact that for the first three years, 100% of the costs of the Medicaid expansion would be covered by the Federal government. This has a number of fiscal, health and mortality implications. According to Opting Out Of Medicaid Expansion: The Health And Financial Impacts,   the implication of 25 states opting out of the Medicaid expansion (the incremental costs of which would be covered 100% by the Federal government in the first three years, and 90% as of 2020) would be increased mortality levels of between 7,115 to 17,104, per annum. Even assuming no increase in the number of people who would be covered under the expansion over time (so for instance if population were to stay constant), the cumulative increased mortality count relative to full Medicaid expansion becomes noticeable quickly. Governments in the 25 states indicated in dark blue have decided not to expand Medicaid.

Latinos not signing up for Obamacare - Minorities are more likely to be uninsured than whites, but many Latinos have largely shied away from signing up for Obamacare. Only 10.7% of people who picked plans on the federal exchange and reported their race were Latino, according to federal data released Thursday. Whites made up nearly 63% of signups, while blacks accounted for 16.7% and Asians for 7.9%.This relatively scant participation comes despite a heavy push by the Obama administration and its supporters into the Latino community. The federal exchange had a Spanish-language site,, as well as a call center with representatives fluent in Spanish. The administration also funded application counselors to help people in low-income and minority neighborhoods enroll.  "Enrollment among Latinos is lagging behind other groups when you look at the share they represent of the target market and the uninsured. This will be one of the big challenges, particularly in border states, as attention turns to increasing sign ups next year,"

House GOPers Face to Face With Unfriendly Facts on Obamacare Democratic lawmakers were emboldened to defend the Affordable Care Act with renewed vigor and levity, creating a dynamic rarely seen in the debate over ObamaCare. Adding to the irregularity, exits on the Republican side at a subcommittee hearing led by Rep. Tim Murphy (R-Pa.) allowed multiple Democrats to speak in a row and let heavy Democratic criticism of Republicans go unanswered, a contrast with the heated exchanges of last fall.  The discussion was not always favorable to the healthcare law, as it touched on health plan cancellations, the potential for premium increases in 2015 and problems that still plague the back end of  Witnesses from the insurance industry were also careful in their comments and promised to submit several answers to the committee at a later date. But Republicans were visibly exasperated, as insurers failed to confirm certain claims about ObamaCare, such as the committee’s allegation that one-third of federal exchange enrollees have not paid their first premium. Four out of five companies represented said more than 80 percent of their new customers had paid. The fifth, Cigna, did not offer an estimate.

Employers Eye Moving Sickest Workers To Insurance Exchanges - Kaiser Health News: Can corporations shift workers with high medical costs from the company health plan into online insurance exchanges created by the Affordable Care Act? Some employers are considering it, say benefits consultants. "It's all over the marketplace," said Todd Yates, a managing partner at Hill, Chesson & Woody, a North Carolina benefits consulting firm. "Employers are inquiring about it and brokers and consultants are advocating for it." Health spending is driven largely by patients with chronic illness such as diabetes or who undergo expensive procedures such as organ transplants. Since most big corporations are self-insured, shifting even one high-cost member out of the company plan could save the employer hundreds of thousands of dollars a year -- while increasing the cost of claims absorbed by the marketplace policy by a similar amount. And the health law might not prohibit it, opening a door to potential erosion of employer-based coverage.

Axing Obamacare’s employer mandate would do little harm, study says -- A new analysis suggests that getting rid of Obamacare's mandate that employers offer workers affordable health coverage or pay a fine would have little effect on the overall insured rate—but could also lessen business opposition to the controversial law.  The research by experts at the Urban Institute found that scrapping the employer mandate due to take effect next year would reduce the number of people who as of 2016 would have some kind of insurance from 251.1 million to 250.9 million—a reduction of just 200,000 people.  John Holahan, one of the researchers, said that is a particularly small number, especially when considering the amount of "noise" generated by Obamacare opponents, who claim on the basis of anecdotal evidence that companies are reducing staff and employee hours to avoid employer mandate-related fines.  And there are "so many other things you could do" to get the 200,000 people health coverage other than compelling employers to offer insurance, said Holahan. One of those things, he said, is having government increase subsidies available to people to buy insurance on Obamacare exchanges, as well as expanding eligibility for Medicaid. "Our feeling is that we're not getting enough out of it [the employer mandate] to have to pay that price politically," said Holahan.

Everything about recent health care macroeconomic indicators I could fit in one post - Last week the health policy wonkosphere exploded with the news that total U.S. health spending had grown by 9.9% in the first quarter of the year as GDP grew only 0.1% (both annualized rates) and the rate of growth in the health care workforce held steady. These new developments could suggest profound, surprising changes in the health system are underway, or they could be speculative, noisy signals of something we basically expected. Which?  First, let’s put the numbers in recent, historical context. To the charts! The chart just below shows time series of GDP (blue) and health spending (red) (source: Dan Diamond). Over the period shown (2004-2014Q1), only during the depths of the Great Recession has the gap between health spending and GDP been as wide as it appears to be today. The next chart, below, illustrates growth in the health care workforce (red) alongside total workforce (blue) (source: Dan Diamond, again). The growth rate of health care jobs has fluctuated a bit, but not much, especially relative to that of all jobs.Willingly suspending disbelief for a moment, these time series suggest that Americans recently poured a lot more of the national economy into health care without moving the needle on the rate of growth in real, human resources (jobs) devoted to delivering care. This would imply at least the possibility of tremendous growth in health care productivity (accelerated growth in health care delivered with steady growth in resources delivering it). Peter Orszag’s chart, just below, makes this productivity hypothesis clear. Ignore all the technical details at the top of the chart; it’s basically the annualized percent change in ratio of health spending to health care jobs. Are we witnessing the beginning of a new era of more productive health care delivery? Probably not, or at least not to the extent the charts above would suggest, if naively interpreted. In what follows, I’ll walk through the possible interpretations and various limitations upon which to hang considerable skepticism. Timothy McBride expressed many of them in his excellent post as well.

March Health Spending Up 7.1% Over March 2013 —National health spending (NHS) in March 2014 grew 7.1% over March 2013, the highest 12-month rate since February 2005, well before the recession, which began in December 2007. The health spending share of GDP reached an all-time high of 17.9% in March, just above its February value of 17.8%. Health care prices in March 2014 were 1.1% higher than in March 2013, only 1/10 above the all-time low. The March 2014 12-month moving average, at 1.2%, represents a new all-time low for our data. Health care gained 18,700 jobs in April. The monthly average for 2014 is now 16,000, just below the average of 17,000 jobs per month for full-year 2013. Hospitals are adding fewer than 1,000 jobs per month thus far in calendar year 2014, after scant growth in 2013. The health share of total employment, at 10.61%, is below the all-time high of 10.66%, last hit in December 2012.

Cancer Doctors Join Insurers in Revolt Against Drug Costs -The backlash over surging drug prices is starting to take hold.  With the average cost of branded cancer drugs doubling over the past decade to about $10,000 per month in the U.S., doctors, insurers and politicians are all moving in different ways to pressure drugmakers on pricing.   Cancer doctors are in the process of creating a way to measure the value of the drugs they prescribe, the first step in a drive to give patients affordable options. Insurers are increasingly paying only a percentage of the cost of high-priced drugs, forcing drugmakers to step into the breach for consumers who can’t afford their products. Politicians, meanwhile, have begun asking drugmakers to explain the cost of their products.  Global spending on cancer drugs alone rose 28 percent to $91 billion in 2013 from $71 billion in 2008, according to a report by the IMS Institute for Healthcare Informatics, the group that also reported the monthly cost rise.

Healthcare: the final reckoning - If the American right is looking for a “death panel” ruling to complain about, one has just appeared: trastuzumab emtansine, a breast-cancer treatment produced by the Swiss pharmaceutical company Roche, looks unlikely to be endorsed by the UK’s National Institute for Health and Care Excellence (Nice). That is not because the drug doesn’t work – Nice thinks it does – but because it costs too much. The death-panel fantasy has mutated over time. It originally raised the prospect that Barack Obama’s healthcare reforms would require bureaucrats to decide who was worthy of treatment and who would be left to die. Death panels do not exist, so now the allegation has shifted to the idea that the president’s reforms involve the rationing of healthcare. So far there is little evidence of that, either. Yet deep beneath the scaremongering is a kernel of truth: if you want to keep costs under control, somebody, somewhere has to be able to say, “That’s great – but it just costs too much.” In the UK, that someone is Nice. How can such decisions be made? The obvious standard is bang for the buck. If $10,000 will extend someone’s life by 10 years, that is better than spending $10,000 to extend someone’s life by 10 hours. Keep spending money on the most cost-effective treatments until all the money is gone. Simple.

Odds your doctor has misdiagnosed you? Frighteningly high --  Roughly 12 million adults who visit US doctors’ offices and other outpatient settings, or one in 20, are misdiagnosed every year, a new study has found, and half of those errors could lead to serious harm. The study by a team of Texas-based researchers attempted to estimate how often diagnostic errors occur in outpatient settings such as doctors’ offices and clinics, as exact figures don’t exist. The team’s study will be published this month in the British medical journal BMJ Quality & Safety. Efforts to improve patient safety have largely focused on inpatient hospital care, including programs introduced by President Barack Obama’s Affordable Care Act, even though most diagnoses are made in outpatient clinics, the study said. “It’s important to outline the fact that this is a problem,” said Dr. Hardeep Singh, the study’s lead author and a patient safety researcher at Baylor College of Medicine in Houston and at the Michael E. DeBakey VA Medical Center, also in Houston. “Because of the large number of outpatient visits, this is a huge vulnerability. This is a huge number and we need to do something about it,” he said in an interview with Reuters.

One in seven hospital patients is diabetic -- One in seven hospital beds is occupied by someone with diabetes – pushing the NHS bill to a record £10billion a year for treating the condition.Campaigners warn the 'eye-watering' cost of diabetes is going to get worse.The illness is strongly linked to lifestyle factors such as being overweight or obese, too little exercise and an unhealthy diet.It already accounts for about 10 per cent of the total NHS budget, with most being spent on complications such as amputations and stroke.The costs will soar further over the next 20 years, when it is projected to soak up 17 per cent of the entire NHS budget, says a report.It will also increase the costs of social care, while a further £9billion is lost to the economy because of reduced productivity or those with diabetes being forced out of work altogether.  Some 3.8million people in the UK have diabetes, including 600,000 who are unaware they have it. The total is predicted to rise to 5million by 2025.

Diabetes Rates in American Children Skyrocket - The prevalence of both Type 1 and Type 2 diabetes has increased significantly among American children and adolescents between the years 2001 and 2009, a new study has found.Dana Dabelea, M.D., Ph.D., of the Colorado School of Public Health, Aurora, Colo., and Dr. Elizabeth J. Mayer-Davis, Ph.D., of the University of North Carolina, Chapel Hill, along with colleagues from SEARCH for Diabetes in Youth Study, examined whether the overall prevalence of Type 1 and Type 2 diabetes among American youth has changed in recent years, and if  sex, age, and race-ethnicity can be correlated.The study population came from five centers located in California, Colorado, Ohio, South Carolina and Washington State, as well as data from selected American Indian reservations in Arizona and New Mexico.

  • The rate of Type 1 diabetes in people under the age of 19 rose from 14.8 per every 10,000 persons in 2001 to 19.3 per every 10,000 persons in 2009. The greatest prevalence increase was in youths ages 15 through 19 years; in both sexes and all races.
  • The rate for Type 2 diabetes jumped from 3.4 per 10,000 in 2001 to 4.6 in 2009.
  • Type 1 diabetes was found to be most common among whites.
  • Type 2 diabetes was most common among Blacks and American Indians.

Alarm Bells Over Antibiotic Resistance -- The World Health Organisation (WHO) has sounded a warning that many types of disease-causing bacteria can no longer be treated with the usual antibiotics and the benefits of modern medicine are increasingly being eroded. The comprehensive 232-page report on anti-microbial resistance with data from 114 countries shows how this threat is happening now in every region of the world and can affect anyone in any country. Antibiotic resistance—when bacteria evolve so that antibiotics no longer work to treat infections—is described by the report as “a problem so serious that it threatens the achievements of modern medicine.” “A post-antibiotic era, in which common infections and minor injuries can kill, far from being an apocalyptic fantasy, is instead a very real possibility for the 21st century,” said Dr Keiji Fukuda, WHO assistant director-general who coordinates its work on anti-microbial resistance. “Without urgent, coordinated action, the world is headed for a post-antibiotic era in which common infections and minor injuries which have been treatable for decades can once again kill."

Don’t use aspirin as primary prevention for heart disease and stroke, FDA warns - Folks without a history of heart attacks or stroke may want to reconsider using aspirin as primary prevention for cardiovascular disease, says the Food and Drug Administration (FDA) in a new statement. “In fact, there are serious risks associated with the use of aspirin, including increased risk of bleeding in the stomach and brain, in situations where the benefit of aspirin for primary prevention has not been established,” the FDA said. Primary prevention refers to prevention taken when there is no prior history of cardiovascular disease. The FDA says that aspirin is still recommended for people who have previously had a heart attack or stroke, as secondary prevention — measures taken to prevent further cardiovascular disease. ”In patients who have had a cardiovascular event,” the FDA writes in a statement, “the known benefits of aspirin for secondary prevention outweigh the risk of bleeding.” Of course, the FDA points out that the agency makes broad and regulatory decisions. Each patient is different and individuals should consult a health care provider to discuss their best treatment. The statement comes after the FDA denied a request made by German company Bayer HealthCare. The company wanted to change their professional labeling of aspirin, and market it as a product for prevention for people with no history of cardiovascular disease. The Food and Drug Administration, however, stated that several studies did not find much support in the claim that aspirin works as primary prevention, and they are still waiting on results from a clinical trial that is currently underway.

An Apple a Day, and Other Myths - A trip to almost any bookstore or a cruise around the Internet might leave the impression that avoiding cancer is mostly a matter of watching what you eat. One source after another promotes the protective powers of “superfoods,” rich in antioxidants and other phytochemicals, or advises readers to emulate the diets of Chinese peasants or Paleolithic cave dwellers. But there is a yawning divide between this nutritional folklore and science. During the last two decades the connection between the foods we eat and the cellular anarchy called cancer has been unraveling string by string.  This month at the annual meeting of the American Association for Cancer Research, a mammoth event that drew more than 18,500 researchers and other professionals here, the latest results about diet and cancer were relegated to a single poster session and a few scattered presentations. There were new hints that coffee may lower the risk of some cancers and more about the possible benefits of vitamin D. Beyond that there wasn’t much to say. In the opening plenary session, Dr. Walter C. Willett, a Harvard epidemiologist who has spent many years studying cancer and nutrition, sounded almost rueful as he gave a status report. Whatever is true for other diseases, when it comes to cancer there was little evidence that fruits and vegetables are protective or that fatty foods are bad.About all that can be said with any assurance is that controlling obesity is important, as it also is for heart disease, Type 2 diabetes, hypertension, stroke and other threats to life. Avoiding an excess of alcohol has clear benefits. But unless a person is seriously malnourished, the influence of specific foods is so weak that the signal is easily swamped by noise

Do we know anything about nutrition at all?!?!? -- A friend pointed me to this study, almost two months old now, “Association of Dietary, Circulating, and Supplement Fatty Acids With Coronary Risk: A Systematic Review and Meta-analysis“:  Researchers wanted to summarize the collected evidence linking fatty acids to coronary disease. Cause we all know they’re terrible, right? They wanted high-quality studies, so they restricted them to prospective onservational studies and RCTs. They found 32 of the former that examined dietary consumption of fatty acids, with more than 500,000 participants, and 17 that looked at fatty acid biomarkers, with more than 25,000 participants. They also found 27 randomized controlled trials, with more than 100,000 participants. Those are some fairly large numbers. So if there’s an association, we should see it. There was so statistically significant relationship between total saturated fats, monounsaturated fats, ω-6 polyunsaturated fats, and coronary disease. Long-chain ω-3 polyunsaturated had a small protective effect (relative risk 0.87, 95% CI 0.78-0.97), and trans fatty acids had a small damaging effect (relative risk 1.16, 95% CI 1.06-1.27). But remember that these studies are on “reported” diet. It’s possible that people could be over- or under-reporting what they eat. So a more precise measure would be to see what’s actually in their body. When they looked at studies that measured circulating fatty acids (the levels in your blood), they found that there was no statistically significant difference between total saturated fatty acids, total monounsaturated fatty acids, α-linolenic acid, total long-chain ω-3 polyunsaturated fatty acids, total ω-6 polyunsaturated fatty acids, total trans fatty acids, and coronary disease. No relationships at all.

Terminal neglect? How some hospices treat dying patients. - For more than a million patients every year, the burgeoning U.S. hospice industry offers the possibility of a peaceful death, typically at home. But that promise depends upon patients getting the medical attention they need in a crisis, and hundreds of hospices provide very little care to such patients, a Washington Post investigation has found. To better understand the quality of services rendered to terminal patients, The Post analyzed the Medicare billing records for more than 2,500 outfits, obtained an internal Medicare tally of nursing care in patients near death and reviewed complaint records at hundreds of hospices. The scarcity of care affects the patients most in need. While many home hospice patients require little more than weekly nursing visits, some encounter crises in which their symptoms — pain, breathing troubles, seizures and so on — flare up in ways that cannot be controlled without sustained attention. For those cases, hospices are supposed to be able to provide either “continuous” nursing care at home or inpatient care at a medical facility. But about one in six U.S. hospice agencies, serving more than 50,000 of the terminally ill, did not provide either form of crisis care to any of their patients in 2012, according to an analysis of millions of Medicare billing records. The absence of such care suggests that some hospice outfits are stinting on nursing attention, according to hospice experts. Inspection and complaint records, meanwhile, depict the anguish of patients who have been left without care.

Infusions of young blood may reverse effects of ageing, studies suggest --  Researchers in the US are closing in on a therapy that could reverse harmful ageing processes in the brain, muscles, heart and other organs. Hopes have been raised by three separate reports released by major journals on Sunday that demonstrate in experiments on mice the dramatic rejuvenating effects of chemicals found naturally in young blood. Infusions of young blood reversed age-related declines in memory and learning, brain function, muscle strength and stamina, researchers found. In two of the reports, scientists identified a single chemical in blood that appears to reverse some of the damage caused by ageing. Although all three studies were done in mice, researchers believe a similar rejuvenating therapy should work in humans. A clinical trial is expected to begin in the next three to five years. "The evidence is strong enough now, in multiple tissues, that it's warranted to try and apply this in humans,"  Ageing is one of the greatest risk factors for a slew of major conditions, from cancer and heart disease to diabetes and dementia. As the population grows older, the proportion of people suffering from such conditions soars. A therapy that slows or reverses age-related damage in the body has the potential to prevent a public health crisis by delaying the onset of several diseases at once.

Researchers develop DNA GPS tool to accurately trace geographical ancestry -- An international team of scientists has developed a process that allows them to pinpoint a person’s geographical origin going back 1,000 years. Known as the Geographic Population Structure (GPS) tool, the method is accurate enough to locate the village from which the subject’s ancestors came, and has significant implications for personalized medical treatment. Whereas previous methods have only been able to trace the origin of a person’s DNA to within some 700 km (435 miles), the new method can track worldwide populations back to the islands or villages they descend from, with a 98 percent success rate. GPS focuses on genetic admixture, a historically common occurrence in which previously separate populations begin to interbreed, creating new gene pools in the process. The new tool models this process by looking at more than 100,000 DNA signatures, known as ancestry-informative markers (AIMs) that are typical to specific geographical regions. The GPS tool uses autosomal chromosomes for analysis rather than mitochondrial or Y chromosomal DNA, as they provide a more balanced picture of an individual’s genetic makeup.

Venezuela's mosquitoes bite back as malaria returns after half a century- Malaria is making a comeback in Venezuela. For the first time in 50 years, the disease, which is disseminated by mosquitoes, is spreading from jungle communities to bustling urban centres. Its revival, experts say, could take at least two years to reverse. The occasional case in remote mining areas aside, Venezuela declared itself malaria-free in the 1960s. This followed a decade-long effort that included widespread spraying of the DDT chemical compound, educational campaigns and a government-led initiative to improve sewage systems and housing. Many healthcare officials in this polarised, oil-rich South American country believe the biggest obstacle to eliminating the disease could be a political one. "Unless you have a concerted effort between the government and public health sectors the problem just grows exponentially," said Dr Gustavo Villasmil, health minister in the opposition-led state of Miranda.

Scarcity of pharmaceutical products at 50% in Venezuela -  Scarcity is overarching. Food, personal care products, household cleaning items, vehicles and even drugs, as confirmed by the Central Bank of Venezuela (BCV). Based on data supplied by the BCV, ending March, shortage of pharmaceutical products amounted to 50%. The BCV report verifies the plight underwent day by day by patients. Chambers and associations in the health sector have warned for months against "suffocation" due to delays in settlement of foreign currency allocated at the official exchange rate. As a result, final products, raw materials and inputs cannot be imported. The Chamber of the Pharmaceutical Industry (Cifar) gave the latest notice. In a press release in early April, Cifar advised that the impossibility to pay the debt to providers could add troubles to supply the domestic market. The pool of 31 companies specified that the situation at that time was "worrisome," considering that there were molecules "with stocks inferior to their scheduled replacement." Based on the information delivered by these organizations to the Venezuelan government, the debt owed by pharmaceutical companies to foreign suppliers is over USD 3 billion. The only possible means to recover the borrowing facilities is by resuming the usual shipment of products to Venezuela.

Spreading Good Around The World - I'm sure there's no connection between this: The World Health Organization on Monday declared the spread of polio a public health emergency of international concern. Alarmed by the spread of polio from conflict zones in three continents, the agency issued the health alert to try to stop the further spread of the disease, a paralyzing virus once thought to be nearly eradicated. An emergency committee convened by the organization announced in Geneva that three countries — Pakistan, Syria and Cameroon — had allowed the spread of the virus and should take extraordinary measures to stop it. and this: In its zeal to identify bin Laden or his family, the CIA used a sham hepatitis B vaccination project to collect DNA in the neighborhood where he was hiding. The effort apparently failed, but the violation of trust threatens to set back global public health efforts by decades. It is hard enough to distribute, for example, polio vaccines to children in desperately poor, politically unstable regions that are rife with 10-year-old rumors that the medicine is a Western plot to sterilize girls—false assertions that have long since been repudiated by the Nigerian religious leaders who first promoted them. Now along come numerous credible reports of a vaccination campaign that is part of a CIA plot—one the U.S. has not denied.

One Billion People Still Poop in Public  -  In sub-Saharan Africa alone, the United Nations says 39 million did not have access to toilets in 2012, a sharp increase One billion people around the world defecate in public, United Nations experts said Thursday, and while that number has gone down overall since 1990, it continues to be a major factor in the spread of fatal diseases. Launching a new study on drinking water and sanitation, the U.N. said that rural, low-income communities run an especially high risk of contracting cholera, diarrhea, dysentry, hepatitis A and typhoid. Efforts to improve sanitation in poor countries has so far concentrated on building more latrines, the U.N. said, but many people don’t want to use them. “In all honesty, the results have been abysmal,” said Rolf Luyendijk, a statistician at the U.N. children’s fund UNICEF, Reuters reports. According to experts like Luyendijk, money would be better spent in educating people as to why human waste out in the open is a public health problem.

Report Finds Dozens of Schools Near Toxic Pesticide Fields - A new report from the California Department of Public Health finds 36 percent of public schools in the state have pesticides of public health concern applied within a quarter mile of the school. Persistent and toxic pesticides like chlorpyrifos, methyl bromide and malathion are among the pesticides found to be applied near schools. The report also finds that Latino children are also more likely to attend schools near areas with the highest use of pesticides of concern. The report, Agricultural Pesticide Use Near Public Schools In California,released this month, looked at 2,511 schools in the 15 California counties with the highest overall use of farm pesticides in California for 2010, and finds that counties in the southern part of the Central Valley had the most schools near farms where pesticides were applied. Fresno County had the highest number of schools–131 –with pesticides applied nearby. Five percent of schools are within a quarter mile of where the highest volumes of pesticides are used: 2,635–28,979 pounds of active ingredient. Latino children are 46 percent more likely than white children to attend schools where pesticides of concern were applied nearby.“These pesticides are not entirely benign, and several of them affect brain development.” The reports lists the top 10 pesticides with the highest application by volume within a quarter mile of a public school, including chloropicrin, 1,3-dichloropropene, paraquat dibromide, captan, malathion and chlorpyrifos. According to the report, all 10 pesticides are classified as priority pesticides for assessment and monitoring by the state. The majority of the pesticides are restricted use, requiring special permits for their application, as well as application restrictions. However, monitoring data show that pesticides can volatilize and drift, and move over long distances fairly rapidly through wind and rain. Some studies have found that pesticides can drift for miles. Documented exposure patterns resulting from drift cause particular concerns for children and other sensitive population groups. Adverse health effects, such as nausea, dizziness, respiratory problems, headaches, rashes and mental disorientation, may appear even when a pesticide is applied in compliance with label directions.

The US is Losing the War Against Deer Disease --It has been over ten years since Wisconsin endured a kind of deer holocaust. The terminal deer and elk disease, chronic wasting disease (CWD), descended upon its deer population with such vengeance officials declared “CWD eradication” zones in which fauns and does would be killed before bucks. Thousands of deer carcasses were stored in refrigerated trucks in La Crosse while their severed heads were tested for CWD. If the carcasses were disease-free they were safe to eat (any takers?); if not, they were too dangerous to even put in a landfill. Why? Because “prions” (which also cause mad cow disease, scrapie in sheep and Creutzfeldt-Jakob disease in humans) are not inactivated by cooking, heat, autoclaves, ammonia, bleach, hydrogen peroxide, alcohol, phenol, lye, formaldehyde, or radiation. They remain in the soil indefinitely. Hunters in Wisconsin and other states were warned to wear surgical gloves when cutting up deer and to avoid exposing open cuts or sores on their hands.  One hunter wrote the local paper that after his buck tested positive for CWD he was worried about the blood on his steering wheel and hunting clothes which his wife was exposed to. There were also cross-contamination risks since deer processors do not usually sterilize their equipment after each deer. Food pantries in Wisconsin and their customers were warned about the risks and it became difficult to donate. (“If this meat is so safe why don’t you eat it?” the poor may have been thinking.) Department of Natural Resources (DNR) officials in Wisconsin and other states assured the public that deer meat was safe, even if it harbored CWD, as long as they avoided eating a deer’s brain, eyeballs, spinal cord, spleen and lymph nodes–the parts also implicated in mad cow disease.  But scientific articles suggested most of the animal contained prions including its kidneys, pancreas, liver, muscle, blood, fat and saliva, antler velvet and birthing material.

Michigan Takes Away the "Right to Farm" from Folks in the Suburbs -- The War on Self-Sufficiency continues, and this week’s victims are small backyard farmers in Michigan. The “right to farm” in that state no longer exists for those who live on any property where there are 13 homes within one eighth mile or a residence within 250 feet of the property. This means that the folks who have a couple of goats, chickens, beehives, or rabbits living harmoniously in their suburban backyards are at the mercy of their local governments and their neighbors. The “right to farm” laws that are on the books originally came about when city dwellers moved to the country and complained about their rural surroundings – things like smells and animal noises. However, the law has protected many people since then who just want some freedom from the system, whether they have a couple of acres or a suburban backyard. The issue here is that those of us who supply as much of our own food as possible are a threat to Big Agri. Michigan Sierra Club Chapter Assistant Director Gail Philbin [said] Tuesday that she believes the action will “effectively remove Right to Farm Act protection for many urban and suburban backyard farmers raising small numbers of animals.” “The Michigan Agriculture Commission passed up an opportunity to support one of the hottest trends in food in Michigan–public demand for access to more local, healthy, sustainable food,”

8 Informative and Interesting Recent USDA Charts - K. Mcdonald - For this post, I’ve gathered together some recent and especially noteworthy USDA charts with their accompanying descriptions. The subjects vary widely, so there should be something of interest for everyone.

Agriculture Census: Conservation and Energy --On May 2, U.S. Department of Agriculture (USDA) released data from the 2012 Census of Agriculture. The Census of Agriculture has been conducted since 1840 and currently is collected once every five years. This post looks at the themes of conservation and energy in the Census. You can also view an introductory post on the Census.

U.S. corn yields are growing, but so is sensitivity to drought - In the US, crop yields just keep increasing. It’s the result of farming techniques, new technology, improved cultivars (including genetically modified ones), and the aggressive application of fertilizers, herbicides, and pesticides. But despite all the advances, farmers are still dependent on the weather, as they have been since the dawn of agriculture. Some areas rely heavily on irrigation, but it’s generally rainwater that feeds the crops in most places. The reliance on rain is one of the factors projected to work against agricultural progress as Earth’s climate continues to warm.  Improved drought tolerance has been one aim of crop breeding, but US corn (“maize” to much of the world) is actually becoming more sensitive to drought—likely because of one of the farming techniques being used to raise yields. Stanford’s David Lobell and a group of collaborators set out to examine recent harvests for evidence of changing drought sensitivity.  They found that the amount of moisture available to plants in July was the best predictor of each year’s harvest. They broke down yields at each location according to that July moisture and averaged them together to get yield trends at various levels of wetness or drought. Even for the driest conditions, corn yields increased over that time period. However, they increased significantly less than yields in wet conditions. That is, the difference between yields in wet and dry areas is now greater than it was in 1995. Soybean yields displayed no such pattern; yields have increased just as fast in dry years.

How Climate Change Is Making America’s Favorite Crop More Vulnerable  -- In America, corn is everything. It’s in our foods — meat, cheese, milk, ketchup, salad dressing, soda, cookies, and chips. It’s found in our makeup, toothpaste, and perfume. Corn even powers our cars, with roughly 40 percent of U.S. corn production used to make ethanol.  But corn production in the American Midwest is becoming more and more vulnerable to the effects of man-made global warming, raising questions about the crop’s future viability, according to a study published Friday in the journal Science. Extreme heat and drought, the study said, has been gradually causing higher stress among densely-planted corn, slowly impacting traditionally increasing crop yields.“The Corn Belt is phenomenally productive,” lead researcher David Lobell, an associate professor of environmental Earth system science at Stanford University, said. “But in the past two decades we saw very small yield gains in non-irrigated corn under the hottest conditions. This suggests farmers may be pushing the limits of what’s possible under these conditions.”Though large decreases aren’t being seen now, the study predicted troubling decreases if the plants can’t learn to adapt to drier and hotter conditions. Currently, the United States produces 40 percent of the world’s corn.If they stay as sensitive as they are now, corn crops in the United States could lose 15 percent of their yield within 50 years. If they continue the trend of becoming more sensitive over time, they could lose as much as 30 percent.

Scientists race to develop farm animals to survive climate change - When a team of researchers from the University of Delaware traveled to Africa two years ago to search for exemplary chickens, they weren't looking for plump thighs or delicious eggs. They were seeking out birds that could survive a hotter planet. The researchers were in the vanguard of food scientists, backed by millions of dollars from the federal government, racing to develop new breeds of farm animals that can stand up to the hazards of global warming. Some climate-change activists dismiss the work, which is just getting underway, as a distraction and a concession to industrial-style agriculture, which they blame for compounding the world's environmental problems. Those leading the experiments, however, say new, heat-resistant breeds of farm animals will be essential to feeding the world as climate change takes hold. The experiments reflect a continued shift in the federal government's response to climate change. With efforts to reduce carbon emissions lagging behind what most scientists believe will be needed to forestall further warming, the government increasingly is looking for ways to protect key industries from the impact. In agriculture, "we are dealing with the challenge of difficult weather conditions at the same time we have to massively increase food production" to accommodate larger populations and a growing demand for meat, said Agriculture Secretary Tom Vilsack.

Industrial Agriculture: Too Big to Succeed - An estimated one billion small farmers scratching out a living growing diverse crops and raising animals in developing countries represent the key to maintaining food production in the face of hotter temperatures and drought, especially in the tropical regions, says Sarah Elton.  The Canadian journalist travelled to southern France, China, India and the province of Quebec in her own country to observe how small farmers apply their practical knowledge of agriculture – defined as either organic, agroecological or sustainable. “What I found most surprising as a journalist was to see how pervasive the social movement was at the grassroots. So, rather than it being a policy perceived by government, people [in the rural areas] are not waiting for government.  [Small farmers] are figuring out better ways themselves.”At the moment a “very big but brittle” global industrial food system is supplying the world’s supply of food, she explains. Typically, it is reliant on the massive growing of single crops like wheat, corn or rice, which in turn are assisted by commercial agriculture inputs such as hybrid seeds, chemical based pesticides and fossil fuel-based fertilisers, as well as an overuse of water. Global industrial food is praised for its efficiency and high yields and so small farmers get aboard. But in the process some become too dependent on these expensive commercial agricultural inputs by borrowing money to pay for them and thereby incurring large debts.

This winter was bitter for honeybees in Medina County, statewide - One of the hardest winters to hit Ohio in years devastated the state’s honeybee population. Agricultural officials have estimated beekeepers across the Buckeye state lost 50 percent to 80 percent of their honeybees, which pollinate more than 70 crops including apples, strawberries and pumpkins. Peggy Garnes, president of the Medina Beekeepers, said the worst winter in more than 20 years immobilized bees in the hive, in many cases killing them only inches away from the honey that sustains them through the winter. “It’s heartbreaking, especially when you’ve got 80 to 90 pounds of food left, just inches away, and nothing but dead bees in a hive you had high hopes for,” she said. Kim Flottum, editor of Bee Culture magazine, published by A.I. Root Co., said the cold destroyed two of four demonstration hives on display at the company’s West Liberty Street campus in Medina. “In winter, bees gather together in a cluster to keep warm” and feed on honey stored in the hive, he explained. In a normal winter over several weeks, the temperature will reach 40 or 50 degrees at least once — warm enough to allow the bees to move to another part of the hive where there is honey. “This year, we didn’t get those warm days,” he said. “It was just too cold for too long.

California drought: Sierra snowpack is barely there - The snow levels in the Sierra were only 18% of average on Thursday, when the last of the season's once-a-month measurements was taken by the California Department of Water Resources. That's worse than last month, when the snowpack was 32% of normal for the date. With mountain temperatures rising into the 70s, it was small surprise that surveyors found no snow at several of the 120 measurement spots, including historic Phillips Station near Echo Summit. Conditions get worse the farther north one goes in the Sierra and Cascade ranges. The snowpack is a paltry 7% of average in the northern part of the state, according to the measurements. The survey results, which are combined with electronic measurements taken from as many as 130 places around the Sierra, are used to calculate California's drinking water supply for the rest of the year. Water resources officials expect that when all the numbers are crunched in a couple of days, they will show this year to be among the six driest in the state's recorded history. April's showers were the last precipitation most of California can expect until fall. The snowpack in California usually peaks in April, so the latest survey was taken after the bulk of the so-called "frozen water supply" had begun to melt. That melted snow makes up 60 percent of the water that is captured in California's reservoirs. The water is used to irrigate 8 million acres of farmland and quench the thirst of most of the state's 38 million people.

Dealing with drought — three ways to fail BB sent this summary of UC Davis’s “Living with Drought” conference (I got my PhD there), and this bit got my attention: Everyone seemed to agree that solutions to living with drought are best found together, across disciplines. “We’re not going to get anywhere if we don’t tackle this in an interdisciplinary manner,” said panelist Glen MacDonald of UCLA. “It’s going to have to be all of us working together and talking together.”An audience member praised the speakers for their ideas on reaching across disciplines and planning wisely. “But how can I communicate this to my neighbor who keeps their sprinkler on when it’s raining?” she asked.“Better education” was the panelists’ response: “All of the devices in the world won’t matter if we can’t keep out neighbors informed of the right thing to do,” said Steve Macaulay, former chief deputy director of the state Department of Water Resources.  In another panel, Frank Loge, director of the UC Davis Center for Water-Energy Efficiency, noted that effective messaging to consumers about the amount of water they are using results in an immediate 5 percent reduction in water use, and can be as much as 20 percent.OMG, this is so FAIL, but typical of academics.Their “solutions” are:

  1. More interdisciplinary work
  2. Better education (“keeping neighbors informed of the right thing”)
  3. Effective messaging of how much water is used

Let’s deconstruct destruct those ideas:

  1. Give us more funding
  2. Teach people to think like you, because you know the real value of water
  3. Send love letters that tell people how much they care

As CO2 levels rise, some crop nutrients will fall: Researchers have some bad news for future farmers and eaters: As carbon dioxide levels rise this century, some grains and legumes will become significantly less nutritious than they are today. The new findings are reported in the journal Nature. Eight institutions, from Australia, Israel, Japan and the United States, contributed to the analysis. The researchers looked at multiple varieties of wheat, rice, field peas, soybeans, maize and sorghum grown in fields with atmospheric carbon dioxide levels like those expected in the middle of this century. (Atmospheric CO2 concentrations are currently approaching 400 parts per million, and are expected to rise to 550 ppm by 2050.) The teams simulated high CO2 levels in open-air fields using a system called Free Air Concentration Enrichment (FACE), which pumps out, monitors and adjusts ground-level atmospheric CO2 to simulate future conditions. In this study, all other growing conditions (sunlight, soil, water, temperature) were the same for plants grown at high-CO2 and those used as controls. The experiments revealed that the nutritional quality of a number of the world's most important crop plants dropped in response to elevated CO2. The study contributed "more than tenfold more data regarding both the zinc and iron content of the edible portions of crops grown under FACE conditions" than available from previous studies, the team wrote.

The Impact Of Climate Change On The Midwest: More Heat, More Droughts, More Floods, Fewer Crops -- The 2014 National Climate Assessment, the single largest attempt to compile the science and data concerning climate change’s impact on the United States, was released on Tuesday. For the American Midwest, the report comes with some stark projections: more extreme heat, along with heavier downpours and flooding, and serious consequences for the ecosystems of the Great Lakes and for large portions of the region’s economy. The NCA bases its projections on whether we make significant cuts to the carbon emissions that drive climate change, offering a low-emission and high-emission scenario. The former, which assumes a more coordinated global economy going forward and significant cuts to carbon emissions, already projects another increase of 5.6°F from the 1979-2000 average by the end of the century. For the high-emission scenario, which assumes a more business-as-usual path for the global economy and humanity’s atmospheric carbon output, the projection for 2100 is 8.5°F.  Here’s how the effects of that warming will shake out for Michigan and the rest of the Midwest:

Fungus Cripples Coffee Production Across Central America - — When coffee rust attacked the farms clinging to the volcanic slopes above this Mayan town, the disease was unsparing, reducing mountainside rows of coffee trees to lattices of gray twigs.During last year’s harvest, Román Lec, who grows coffee on a few acres here, lost half his crop. This year, he borrowed about $2,000 for fertilizer and fungicide to protect the plants, as he did last year. But the disease returned and he lost even more.“There are nights when you cannot sleep, thinking how to pay back the money,” said Mr. Lec, 65.  A plant-choking fungus called coffee rust, or la roya, has swept across Central America, withering trees and slashing production everywhere. As exports have plunged over the last two years, the effects have rippled through the local economies.Big farmers hire fewer workers to pick the ripe coffee cherries that enclose the beans. Smaller farmers go into debt and sell livestock or tools to make up for the lost income. Sales fall at local merchants. Teenagers leave school to work on the farm because their parents can no longer hire outside help. At the very end of the chain are the landless migrant workers who earn just a few dollars a day.  A fungus called “coffee rust” has caused declining harvests of Guatemalan coffee in the last two years. Luis Antonio, a coffee bean farmer, says the spread of the fungus is threatening his livelihood.

Good News For Food Shoppers: Global Prices Are Falling - It may be a good time for the world’s shoppers to stock up on food essentials, from sugar to meat. World food prices fell in April, led by sharp declines in dairy prices, while sugar and cooking oil prices also fell, according to  a new report from the United Nations. The U.N.’s food index — the world’s leading indicator of food inflation that measures the monthly change in prices of a basket of edible commodities — averaged 209.3 in April, falling 1.6% on March’s levels. “We’re seeing lower prices due to abundant supplies,” said the U.N.’s principal food economist, Abdolreza Abbassian. But he warned that the onset of any extreme weather patterns later this year, such as an El Niño, could dent food production and reverse the price slide. Dairy prices in particular showed signs of easing last month, down almost 7% from March levels. “The market of all dairy products has been affected by reduced purchases by China — the main importer of whole milk powder and second largest importer of skimmed milk powder — and the Russian Federation, the main importer of butter,” said Mr. Abbassian. Plus, a good start to the dairy year in the northern hemisphere has boosted supplies available for export, especially for milk powder. Elsewhere, sugar prices also fell last month, down 1.6% on March as better weather led to higher production of the sweetener in Thailand and India.

La Nina, The SOI & Glimmers Of Concern In The Ags -Agricultural commodities have been among the best performing assets of the year so far, but, as Diapason Commodities's Sean Corrigan warns, there are starting to be some glimmers of concern. Via Sean Corrigan's Diapason Commodities,"China seems to be finding ways to cancel as many shipments as it can...(as we noted here)  As we explained previously, While apologists of China's collapse have been quick to point out that China's credit collapse would be largely a domestic issue, with little foreign creditor exposure at either the public debt, or private - corporate - debt levels, one thing nobody can deny is that if and when Chinese trade routes grind to a halt, the downstream impacts would be devastating, and spread like wildfire as the offshore supply chain is Ice 9'ed. And sure enough that is what Reuters reports above is happening. Long positions have mounted (especially in wheat) and though few have commented on it - the SOI has swung closer to La Nina than the El Noino threshold...

El Niño odds rise to 80 percent by winter; beware of forecasts of doom -- It’s not quite a lock, but an increasingly safe bet that El Niño will develop by November or December, if not sooner. In a bulletin released today, the National Weather Service’s Climate Prediction Center (CPC) announced the chance El Niño forms this summer is 65 percent, and the odds go up from there. El Niño prospects reach “a peak probability of ~80% during the late fall/early winter of this year” writes Michelle L’Heureux of CPC at As a reminder, an El Niño event is a warming of the sea surface temperatures in the tropical Pacific with ripple effects on the weather all over the world.  The specific manifestations of any given  El Niño event strongly depend on its strength (and every El Niño event is different), but the phenomenon has become associated with:

* Increased rainfall in Peru
* Drought in Australia
* Elevated rainfall in California during moderate and strong events
* Increased snowfall in the Mid-Atlantic, especially for moderate events.
* Depressed hurricane activity in the tropical Atlantic
* Increased hurricane activity in the eastern tropical Pacific
* Dry weather in the Pacific Northwest
* Cooler and wetter than average conditions in the Southeast
* Warmer than average temperatures in Alaska
* An uptick in the average global temperature

Lasting Effects of the Polar Vortex on the Great Lakes -- This winter was brutal. Polar vortex brutal. My salt-caked boots and dry skin can attest to the frigid temperatures that covered more than 90 percent of the Great Lakes in ice. Much of that ice is still there—though some of it has run aground in an ice tsunami(!). Over the decades, ice coverage on the lakes has been on the decline, but for the month of April, an average of 45 percent of lake surface remained ice-covered, according to the Great Lakes Environmental Research Laboratory. That’s nearly double the ice coverage of 1996, when the previous record was set, making April the iciest month since recordkeeping began in 1973.  So what does this mean for the lakes themselves? Well, there are a few surprising outcomes of the lakes staying frozen so long. Last year lakes Michigan and Huron hit their lowest levels since 1918, reaching an average of 29 inches below average. (The others are way below average, too.) The logic behind it goes something like this: warmer winters mean less ice cover; less ice cover leads to warmer water temperatures; warmer water temperatures cause more evaporation. This winter’s cooler temps will likely keep the water in the lakes for longer, possibly bringing them back to average water levels—at least temporarily. Predictions of how high the water may rise range from 6 to 20 inches. It’s hard (if not impossible) to predict how temperature and precipitation will factor in to lake levels. Even so, the U.S. Army Corps of Engineers has an official water level forecast.

Not Just Sea Level Rise: Northeast Faces Flooding From The Skies - The nation’s capital and financial center, not to mention other major metropolitan areas in the Northeast, are going to get soggy. And not just because of dramatic sea level rise and storm surge. The third National Climate Assessment, released Tuesday, stresses that the onslaught of water will come from the skies as well as the oceans.  In the aftermath of Superstorm Sandy, which slammed into the East Coast in October 2012, causing up to $80 billion in damage, most people in the Northeast quickly became familiar with the threat posed by sea level rise. Since 1900, the East Coast has seen about one foot of sea level rise — four inches more than the global average. And the area could see anywhere from another foot to four additional feet by the end of the century.  But the National Climate Assessment makes it clear that future flooding in the region won’t be limited to coastal areas. Precipitation is not only increasing in the area, but the incidence of extreme precipitation events, which often spark flash flooding, is on the rise as well.

Megacities contend with sinking land: Subsiding land is a bigger immediate problem for the world's coastal cities than sea level rise, say scientists. In some parts of the globe, the ground is going down 10 times faster than the water is rising, with the causes very often being driven by human activity. Decades of ground water extraction saw Tokyo descend two metres before the practice was stopped. Speaking at the European Geosciences Union General Assembly, researchers said other cities must follow suit. Gilles Erkens from the Deltares Research Institute, in Utrecht, in the Netherlands, said parts of Jakarta, Ho Chi Minh City, Bangkok and numerous other coastal urban settlements would sink below sea level unless action was taken. His group's assessment of those cities found them to be in various stages of dealing with their problems, but also identified best practice that could be shared. "Land subsidence and sea level rise are both happening, and they are both contributing to the same problem - larger and longer floods, and bigger inundation depth of floods," Dr Erkens told BBC News.

Carbon Dioxide Levels Rocketed to an Apex in April — and It's Not Stopping -- As scientists expected, April became the first month in human history to have an average concentration of carbon dioxide — the main long-lived global warming gas — above 400 parts per million (ppm), according to data from a National Oceanic and Atmospheric Administration (NOAA) observatory, which sits atop a 11,000-foot-tall Hawaiian volcano.  This is a symbolic but grim milestone for those who are fighting to lower global greenhouse emissions to reduce manmade global warming; as carbon dioxide levels climb, so do the risks of triggering dangerous climate change, such as the melting of land-based ice sheets and flooding of coastal cities.  As Mashable reported on April 8, the month started out with carbon dioxide, or CO2, above 400 ppm, a milestone that had been reached only briefly in mid-May 2013. In fact, the 400 ppm threshold was first reached (although not maintained) this year in mid-March, a full two months earlier than it last year.  Subsequent data showed that CO2 levels were above 400 ppm each day in April at the Mauna Loa Observatory, where such data has been gathered since 1958. This trend is likely to continue until the annual peak in Northern Hemisphere CO2 levels is reached in May. After early June, NOAA expects CO2 levels to temporarily decline as trees and plants in the northern hemisphere take up CO2 during the summer growing season.When the Mauna Loa data collection first began, CO2 levels were at just 313 ppm, indicating an extraordinarily steep rise — recently about 2 ppm per year — that has been attributed to human activities, such as the burning of fossil fuels such as coal, oil and natural gas

First Time In 800,000 Years: April CO2 Levels Above 400 ppm - Ilargi -- It’s quite a milestone we’ve passed here. Time for some contemplation perhaps. Time to wonder if enough people will care enough soon enough. Doesn’t look like it. Looks like we’re too busy drilling in the ever scarcer remaining pristine locations we haven’t yet exploited, and too busy preparing to go to war over access to the very resources that lifted us all the way up over 400ppm in what’s really no more than the blink of an eye in the 800,000 year timeframe. We’ll all just get into our cars again this morning and tell ourselves we’re looking out for number one. Maybe we need to be reminded what number one really is. First time in 800,000 years: April’s CO2 levels above 400 ppm (CBS) Less than a year after scientists first warned that the amount of carbon dioxide in the atmosphere could rise above 400 parts per million and stay there, it has finally happened. For the first time in recorded history, the average level of CO2 has topped 400 ppm for an entire month. The high levels of carbon dioxide is largely considered by scientists a key factor in global warming, according to the National Oceanic and Atmospheric Administration’s (NOAA) Earth System Research Lab. The Scripps Institution of Oceanography, a part of the University of California, San Diego, reported that April’s average amount of CO2 was 401.33 ppm, with each day reading above 400 ppm.

How Stable is Earth’s Climate?,  - Americans have very different mental models of the stability of the climate system. In a nationally representative study, we examined Americans’ understanding of how the climate system works. Survey respondents were presented with the following question:“People disagree about how the climate system works. The five pictures below illustrate five different perspectives. Each picture depicts the Earth’s climate system as a ball balanced on a line, yet each one has a different ability to withstand human-caused global warming. Which one of the five pictures best represents your understanding of how the climate system works?”

  • Fragile: Earth's climate is delicately balanced. Small amounts of global warming will have abrupt and catastrophic effects.
  • Threshold: Earth's climate is stable within certain limits. If global warming is small, climate will return to a stable balance; if it is large, there will be dangerous effects.
  • Gradual: Earth's climate is gradual to change. Global warming will gradually lead to dangerous effects.
  • Random: Earth's climate is random and unpredictable. We do not know what will happen.
  • Stable: Earth's climate system is very stable. Global warming will have little or no effects.

Most respondents chose the Threshold model (34%), followed by the Gradual (24%), Random (21%), Fragile (11%) and Stable (10%) models. Scientifically, at different temporal or spatial scales the climate system can exhibit each of these behaviors, but the best overall answer is the threshold model.

Understanding the IPCC: An Important Follow-Up - Robert Stavins - A week ago, I wrote at this blog about my recent frustrations with the government approval process of one part of the Summary for Policymakers (SPM) of the Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report (AR5) Working Group III (WG3) report, namely the section in the Summary for Policymakers (SPM.5.2) on “International Cooperation,” for which I had major responsibility. My first post has been widely reported in the press.  Some of this coverage was accurate and reasonable.  Pilita Clark of the Financial Times, in particular, wrote an excellent article that accurately presented my views and conveyed some additional useful insights.  Other press coverage, however, inaccurately stated or suggested that my critique of the IPCC process was much broader than it was.  This was despite my very careful caveats in the first blog post, in which I tried hard to communicate clearly the limited focus of my critique, namely the effects of the government approval process on one section (SPM.5.2) of the Summary for Policymakers. Some in the more fringe elements of the press and blogosphere quickly capitalized on the situation by distorting the message of my original post to meet their own objectives – by stating or implying that I found fault with the overall IPCC process and reports themselves, that I have positioned myself as an opponent of the important work of the IPCC, and/or that I am a skeptic of the science of climate change!  Because of these over-the-top distortions, I am writing this second post to place my original critique in the context of the overall IPCC process and of the IPCC’s recent Fifth Assessment Report.

Climate change is clear and present danger, says landmark US report--- Climate change has moved from distant threat to present-day danger and no American will be left unscathed, according to a landmark report due to be unveiled on Tuesday. The National Climate Assessment, a 1,300-page report compiled by 300 leading scientists and experts, is meant to be the definitive account of the effects of climate change on the US. It will be formally released at a White House event and is expected to drive the remaining two years of Barack Obama's environmental agenda. The findings are expected to guide Obama as he rolls out the next and most ambitious phase of his climate change plan in June – a proposal to cut emissions from the current generation of power plants, America's largest single source of carbon pollution. The White House is believed to be organising a number of events over the coming week to give the report greater exposure. "Climate change, once considered an issue for a distant future, has moved firmly into the present," a draft version of the report says. The evidence is visible everywhere from the top of the atmosphere to the bottom of the ocean, it goes on. "Americans are noticing changes all around them. Summers are longer and hotter, and periods of extreme heat last longer than any living American has ever experienced. Winters are generally shorter and warmer. Rain comes in heavier downpours, though in many regions there are longer dry spells in between."

Landmark Report Warns Time Is Running Out To Save U.S. From Climate Catastrophe - The National Climate Assessment is the definitive statement of current and future impacts of carbon pollution on the United States. And the picture it paints is stark: Inaction will devastate much of the arable land of the nation’s breadbasket — and ruin a livable climate for most Americans. “Americans face choices” explains the Congressionally-mandated report by 300 leading climate scientists and experts, which was reviewed by the National Academy of Sciences. We’re already seeing serious climate impacts — such as more extreme heat waves, droughts, and deluges — and additional impacts are “now unavoidable.” But just how bad future climate change is “will still largely be determined by choices society makes about emissions.” Let’s look at some of our choices:

American Doomsday: White House Warns of Climate Catastrophes - Scorching temperatures, flooded cities, wildfires and changes in the growing season are just some of the hard realities of a changing climate that are beginning to hit Americans directly, says a new White House report. “Climate change, once considered an issue for a distant future, has moved firmly into the present,” the White House report released on Tuesday says. The third National Climate Assessment, the result of four years of research by hundreds of leading scientists and experts, draws a dire picture of a future in which human activity has contributed directly to massive changes in weather. A 1,000-page draft version of the National Climate Assessment was issued last year, and the final version was approved on Tuesday. “I think this National Climate Assessment is the loudest and clearest alarm bell to date signaling the need to take urgent action to combat the threats to Americans from climate change,”  The report moves climate change directly into American homes, citing models that show a potential for worsened rates of asthma, and higher pollen levels that may trigger allergies, among other effects. “Corn producers in Iowa, oyster growers in Washington State, and maple syrup producers in Vermont are all observing climate-related changes that are outside of recent experience," they wrote in the report.

U.S. Climate Has Already Changed, Study Finds, Citing Heat and Floods - The effects of human-induced climate change are being felt in every corner of the United States, scientists reported Tuesday, with water growing scarcer in dry regions, torrential rains increasing in wet regions, heat waves becoming more common and more severe, wildfires growing worse, and forests dying under assault from heat-loving insects.Such sweeping changes have been caused by an average warming of less than 2 degrees Fahrenheit over most land areas of the country in the past century, the scientists found. If greenhouse gases like carbon dioxide and methane continue to escalate at a rapid pace, they said, the warming could conceivably exceed 10 degrees by the end of this century.“Climate change, once considered an issue for a distant future, has moved firmly into the present,” the scientists declared in a major new report assessing the situation in the United States.  “Summers are longer and hotter, and extended periods of unusual heat last longer than any living American has ever experienced,” the report continued. “Winters are generally shorter and warmer. Rain comes in heavier downpours. People are seeing changes in the length and severity of seasonal allergies, the plant varieties that thrive in their gardens, and the kinds of birds they see in any particular month in their neighborhoods.”

Climate v. Capital  - What is it about capitalism that the system willfully pursues strategies that look certain to bring about its own demise? The answer lies in the fact that while an unaddressed climate crisis will be lethal to capitalism, the solutions to the crisis also promise to bring the system down — and sooner. The capitalists’ dilemma becomes clearer if we list some of the key measures required:
· At least two-thirds of proven fossil fuel reserves need to be left in the ground. That is billions of dollars effectively written off.
· Material and financial resources need to be reoriented, in a concerted way, from the pursuit of maximum profit toward achieving rapid declines in greenhouse gas emissions.
· This reorientation of the economy will need to include a large element of direct state spending, structured around long-term planning and backed by tightening regulation. Schemes such as carbon pricing cannot play more than a limited, subsidiary role.
· To keep mass living standards at the highest levels consistent with these measures, and ensure popular support, the main costs of the reorientation need to be levied on the wealthy.

Can anyone imagine the world’s capitalist elites agreeing to such measures, except perhaps under the most extreme popular pressure?

Climate Change: The Bigger Picture -- I’ve noticed some parallels among three defining institutions of our civilisation: money, war, and mainstream religion. All three demand, in one way or another, the sacrifice of the immediate, the human, or the personal in service to an overarching ulterior goal that trumps all. Anyone who is wary of these institutions might also be wary of the standard climate change narrative, which lends itself to the same mentality of sacrifice to an all-important end. If we agree that the survival of humanity is at stake, then any means is justified, and any other cause – say reforming the prisons, housing the homeless, caring for the autistic, rescuing abused animals, or visiting your grandmother – becomes an unjustifiable distraction from the only important thing. Taken to its extreme, it requires that we harden our hearts to the needs in front of our faces. There is no time to waste! Everything is at stake! It’s do or die! How similar to the logic of money and the logic of war.That climate-change alarm sits so comfortably within our culture’s familiar way of thinking, should give us pause. It doesn’t mean that climate change isn’t dangerous or that humans aren’t causing it, but it does suggest that our approach to the problem could be strengthening the psychic and ideological substructure of the system that is devouring the planet. This is especially relevant given the near-universal agreement among activists that efforts to limit carbon emissions have failed miserably. This failure comes not because the movement is too radical and needs to ‘work more closely with business’ or embrace the oxymoron of ‘sustainable growth’. It is rather that it is not radical enough – not yet willing to challenge key invisible narratives that drive our civilisation. On the contrary, the movement itself embodies them.

Proposed mine by wild Smith River roils Del Norte County folks -  The clear, flowing Smith River is a life force in the northern corner of California, where the locals keep a sharp eye out for threats to the pristine water and thriving fish. That would explain why the folk who live along the river in Del Norte County nearly jumped out of their britches when they learned about a proposed nickel mine along a major tributary of the Smith, the last major river without a dam left in the state. A London mining company has applied to the U.S. Forest Service to begin exploratory drilling over thousands of acres of forest lands, including Baldface Creek, in Curry County, Ore., which flows into the Smith and helps maintain one of the most abundant natural salmon runs in California.  Nickel mining is well known for leaving environmental scars, including several superfund sites. This type of hard rock mining is the largest source of toxic pollution in the United States, according to the U.S. Environmental Protection Agency.

Development in the Ecological Age -- Do you live in a developed nation or a developing nation? If your nation has an extensive system of roads, rail and airports, if it is fully electrified, if it is mostly urban and suburban, if modern medicine is widespread, if literacy and education are near-universal, if most people are connected to the Internet, and if, most crucially, per capita GDP is high, then most people would say you live in a developed nation. Otherwise, it will be classified as developing—still on the way to acquiring these things.  Implicit in the developed/developing distinction is the assumption that the course of social and economic evolution exemplified by the developed countries is normal, inevitable and generally desirable. If I am developed and you are developing, that means that your destiny is to be like me.Today, some key flaws in the narrative of development are become obvious. Most flagrant of all is the problem of resource use and ecological footprint. There aren’t enough resources on earth for every human being to live like a North American or Western European, nor can the air, forests and oceans sustain that much pollution. A host of social ills as well seem to be development’s inseparable companions, and not mere temporary dislocations to be fixed with yet more social engineering.

Enron 2.0: Goldman-Linked Investors Set to Manipulate East Coast Electricity Prices - Yves Smith - You’d think regulators and the public would remember how badly California was burned by Enron’s electricity price manipulations, which cost each resident more than $1300 in higher energy bills, and would be eager to avoid a rerun. But memories are short. As David Cay Johnson reported in an important story at Aljazeera, Energy Partners, a Goldman-linked investment group, looks set to repeat Enron’s ploy on the East Coast.  I strongly suggest you read Johnson’s account in full, but here’s the short version. The key to energy price manipulation now is how tight the market is overall and how few participants bid at particular auctions.  Electricity is sold at what are called “clearing price auctions”. The price set for all bidders is based on the highest price that still helps fill the overall order. In other words, if A bids $5 for 20 units of energy, and B bids $10 for 5 units, but the need at that point is for 45 units, higher bids will be treated as filling the order. In our example, we are only at 25 units out of 45 so far. So then order C for 15 units at $25 is waved in, and the final bid, for 30 units at $50, is partially filled. The last bidder supplies only 5 units of the total, but his $50 bid is the clearing price, and everyone who bid lower also gets their offers filled at $50.  So if you reduce capacity (supply), all participants will tend to bid at higher prices because they know their odds of getting all or part of a bid are better than before. And a reduction in the number of bidders also makes it easier for the suppliers to collude informally. As Johnson explains:  While collusion among suppliers is illegal, learning how to jack up prices by studying bidding patterns is perfectly legal. The original market rules, by the way, were drafted by a massive fraud posing as an electricity trading company named Enron. Yes, sports fans, the “rules” that Enron devised so it could game energy markets are still in force!

Report: Pentagon Paid $150 Per Gallon for Green Jet Fuel - The Department of Defense (DOD) paid $150 per gallon for alternative jet fuel made from algae, more than 64 times the current market price for standard carbon-based fuels, according to a report released on Wednesday.  The Government Accountability Office (GAO) noted in its report that a Pentagon official reported paying “about $150 per gallon for 1,500 gallons of alternative jet fuel derived from algal oil.”  GAO’s report examined the financial challenges facing increased purchases and use of alternative jet fuels by federal agencies. “Currently, the price for alternative jet fuels exceeds that of conventional jet fuel,” the report noted.  The price for conventional jet fuel is currently $2.88 per gallon. GAO’s report reveals that federal agencies have paid significantly higher prices in an effort to promote biofuels in commercial and military aviation. “Of the two alternative jet-fuel production processes approved for use in commercial and military aircraft (Fischer-Tropsch and HEFA), DOD, according to a DOD official, paid from about $3 to $150 per gallon,” GAO reported.HEFA and other alternative jet fuels are currently produced in large measure by small firms that do not have the economies of scale to manufacture them in a cost-effective way.To address that problem, federal agencies have been buying extremely expensive alternative fuels as a means of subsidizing those firms.

Chernobyl’s Toll on Nature - New York Times - Biologist Timothy Mousseau has been studying the lasting effects of radiation on the flora and fauna of Chernobyl, Ukraine.

Fukushima-Style Nuclear Power Plant in Washington Is a Seismic Timebomb - The Columbia Generation Station, Washington’s only commercial reactor, sits inside the Department of Energy’s Hanford Nuclear Reservation, a former nuclear weapons production site. Powered by a General Electric Mark II boiling water reactor, Columbia began operating in Dec. 1984. In 2009, the industry-funded Institute of Nuclear Power Operations ranked Columbia as one of the country’s two reactors “most in need of improvement.” Of the 75 unplanned shutdowns (or “scrams”) that hobbled the U.S. commercial nuclear fleet that year, Columbia accounted for five. Even Brad Sawatzke, the plant’s chief nuclear officer, conceded in an April 2011 interview that “our one Northwest nuclear reactor has the worst shutdown history in the country.” But, he hastened to add, “most [of the scrams were]… associated with the turbine side of the house and not nuclear.”  Today, the reactor has become the focus of a growing debate over the safety of nuclear plants built in seismic trouble spots. The problem stems from the fact that the seismic studies available to the Washington State Public Power System engineers who designed the reactor only ran from 1974 to 1981, and new faults have been discovered since then.

Four Months After Massive West Virginia Spill, EPA To Test Safety Of Inhaling Chemical Fumes -- Nearly four months after a coal-cleaning chemical mixture spilled into the Elk River and contaminated the water supply for 300,000 West Virginia residents, the Environmental Protection Agency will test the chemical in air and set a corresponding safety limit for breathing the fumes. The decision marks the first time officials will take into account potential impacts beyond ingesting the chemicals and comes after the EPA asked on two previous occasions about setting a standard for inhalation, the Charleston Daily Mail reported. While the new standard could inform future decisions, it will offer little comfort to the thousands of West Virginians already exposed to the chemical vapors. “I’m at a loss as to what the utility is to the 300,000 people from this particular test,” Dr. Rahul Gupta, head of the Kanawha-Charleston Health Department, told the Daily Mail.  Very little is known about crude MCHM and its potential effect on humans and the environment — a key problem that hamstrung both the immediate response to the spill and the analyses that have occurred over the past several months. While approximately 10,000 gallons of the chemical mixture are estimated to have spilled into the Elk River, just upstream from a major water intake facility, residents reportedly began smelling the licorice-like odor characteristic of crude MCHM several weeks before the spill was reported.

Spill Baby Spill : The Year to Date in Frackastrophes -  (over 100, with a link to the story on each) A partial list . . . more fracking nonsense coming your way down a railroad track, highway or river real soon.  Charge your video camera, get a YouTube account and put a tort lawyer on speed dial.  Or just ban it. That works too.

Airborne Study Shows Colorado Oil and Gas Wells Leaked 3 Times More Methane Than EPA Estimates | EcoWatch: Scientists from a multi-agency partnership went airborne to discover that some greenhouse gases leaked up to seven times more from Colorado’s largest oil and gas than regulators previously estimated. Researchers with the National Oceanic and Atmospheric Administration (NOAA) and the Cooperative Institute for Research in Environmental Sciences (CIRES) at the University of Colorado Boulder led the peer-reviewed study in 2012 and have now received approval for publication in the American Geophysical Union’s Journal of Geophysical Research—Atmospheres. The study’s findings were stark. Oil and gas operations in Colorado’s Front Range leaked nearly three times as much methane as predicted, based on inventory estimates from the Environmental Protection Agency’s Greenhouse Gas Reporting Program, and seven times as much benzene. Other summertime ozone polluters leaked about twice as much as estimates. “These discrepancies are substantial,” said lead author Gabrielle Petron, an atmospheric scientist with NOAA’s Cooperative Institute for Research in Environmental Sciences at the University of Colorado Boulder. “Emission estimates or ‘inventories’ are the primary tool that policy makers and regulators use to evaluate air quality and climate impacts of various sources, including oil and gas sources.

How Fracking Is Exposing People to Radioactive Waste, Far Away from Drilling Sites - There isn’t a lot of good news about fracking lately.  Another train with volatile fracked crude oil from North Dakota’s Bakken Shale exploded in Lynchburg, Virginia igniting a ball of fire on the surface of the James River. Accidents involving these “ bomb trains” are becoming commonplace. So are recent  studies indicating serious health risks  from fracking and reports linking fracking to earthquakes. With all that press you may have missed another cause for alarm: radiation risks. The oil and gas-drilling boom, aided by the practice of fracking, has unleashed some potentially scary radioactive stuff into our environment. Fracking involves injecting large quantities (sometimes millions of gallons) of water, sand, and chemicals at high pressure deep underground to break apart shale and release trapped hydrocarbons like oil and gas. But the process can also bring to the surface water that is laced with naturally-occurring radioactive materials that were underground. In small, dispersed quantities low-level radiation is not life threatening, but what happens when those quantities start increasing in the environment, and getting into the water we drink, the fish we eat, and the soil in which our food grows? Scientists are trying to figure that out. But it’s a difficult process to track since fracking isn’t regulated under most federal environmental laws like the Safe Drinking Water Act and the Clean Water Act. That means industry is charge of policing itself a lot of the time. Another problem is that it’s really hard to keep track of all the stuff that may become tainted by radioactive materials in the drilling process. Millions of gallons of soupy wastewater that flow back from wells after drilling and fracking can end up in a number of places. Sometimes the wastewater is simply left in lined or unlined pits to either evaporate or sink back into the ground. Other times it is sent to water treatment plants and eventually released back into rivers and streams. At times it is simply spilled or illegally dumped. It also ends up contaminating drilling mud (a more solid waste from the process), storage tanks, and equipment.

Why Don’t We Have Good Data On The Health Effects Of Fracking?  This week the Colorado Senate Appropriations Committee defeated a bill that would have commissioned a study on the health effects of hydraulic fracturing, or fracking, in the state’s Front Range. Frank McNulty (R-Highlands Ranch), who opposed the study, told ThinkProgress the “specter of political motivation” made it suspect. A look at the bill itself revealed no obvious cause for concern for drilling advocates. One representative of the environmental community would be present on the study’s advisory committee, balanced out by a representative of the oil and gas industry. But if claims of politicization and duplicated studies don’t hold much water, what could be behind the opposition?  In their view, measuring symptoms and health outcomes of people living near fracking operations is subject to people’s biases about drilling, and can result in people attributing unrelated health problems to it. This is similar to the way companies have dealt with lawsuits over fracking’s health effects, asserting that there’s no way to prove they were actually a result of the drilling. And drillers regularly choose to settle lawsuits over health problems stemming from fracking operations, rather than have the effects become public record. But scientists conducting such a study would be tasked with separating out confounding biases. Checking for specific pollutants could leave out the many secret chemicals involved in fracking, and a large portion of existing studies only look at ideal cases, with no spills or leakages, even though those things certainly occur.

Shale drilling's mixed legacy: new jobs and community costs --Natural gas drilling has transformed two Pennsylvania counties with the greatest development activities, for better and for worse. While there were new jobs and businesses, there was also more crime, increased costs for emergency services and road maintenance, and a shortage of affordable housing. In one of the two counties, the benefits proved to be temporary, as drilling activity subsided. The Multi-State Shale Research Collaborative set out to document the local impacts of shale gas drilling in Greene and Tioga counties, as well as in Carroll County, Ohio, and Wetzel County, West Virginia. To view a summary of all four case studies or the studies themselves, go to ...  Both case studies recommend that communities with increased drilling create local oil and gas taskforces to coordinate discussions between government agencies, local stakeholders, and companies, and that local landowners establish a landowners group to help each other navigate the growth of the industry. The studies also recommend the state replace its local impact fee with a severance tax and that more investments be made in fixing and policing the roads and making affordable housing more available in hard-hit communities.

Oil and Gas Operations Are a ‘Death Sentence for Soil’ - Yesterday’s Denver Post has a very important story about the toll of oil and gas production on soil. Soil sounds like a really boring topic. But, as the Soil Science Society of America says: “soils sustain life.” According to the Society, “soil supports and nourishes the plants that we eat” and that livestock eat; soil “filters and purifies much of the water we drink;” “soils teem with microorganisms that have given us many life-saving medications;” and “protecting soil from erosion helps reduce the amount of air-borne dust we breathe.” According to the Post:

  • At least 716,982 gallons (45 percent) of the petroleum chemicals spilled during the past decade have stayed in the ground after initial cleanup—contaminating soil, sometimes spreading into groundwater.
  • Oil and gas drilling produces up to 500 tons of dirt from every new well, some of it soaked with hydrocarbons and laced with potentially toxic minerals and salts.
  • Heavy trucks crush soil, “suffocating the delicate subsurface ecosystems that traditionally made Colorado’s Front Range suitable for farming.”

Ohio Town Votes Against Fracking Ban For Third Time in a Year | EcoWatch: For the third time in the past year, voters in Youngstown, OH voted against a fracking ban. Voters there struck down the ban by 8.5 percentage points, according to results from the Mahoning County Board of Elections. The members of the Community Bill of Rights Committee that led the fight were disappointed, but not beaten down. They’re not sure if the fourth time will be a charm, but the members will make a future return to the ballot. “We’ll put it on again,” committee member Susie Beiersdorfer told the Youngstown Vindicator. “It doesn’t matter how many times we have to fight for our inalienable rights to clean water and clean air.”

House prepares severance tax; income tax cut would be small | Dispatch Politics: More than two years after Gov. John Kasich first proposed the idea, the Ohio House appears ready to move next week to create a new severance tax on shale fracking. But Kasich doesn't think the bill is adequate. The House Ways and Means Committee yesterday got its first look at the latest version of the bill, which sets another new tax rate, sends more money to local communities, and tries again to tighten up language related to the value of the oil and gas that is ultimately taxed. “Probably no one is going to fall in love with this, but we’re trying to get something people can live with,” said Rep. Jeff McClain, R-Upper Sandusky, the committee chairman. “That seems to be where we’ve reached some kind of agreement in conversations with the Senate.” Unlike the prior bill, which imposed a gross receipts tax of 1 percent for the first two years of a horizontal well’s production before going to 2.25 percent through year 20, the latest version sets a single 2.5 percent rate from start to finish. The rate would apply to “wellhead gross receipts,” which are receipts from the first sale of oil or gas severed from the ground. For wells drilled after Oct. 1, the first $10 million of gross receipts would be exempt from the tax.

Policy Group Opposes New Severance Tax Plan / ideastream - Northeast Ohio Public Radio - Lawmakers are now mulling over a new severance tax plan that splits the difference between proposals from House leadership and Gov. John Kasich. The tax on oil and gas would be set at 2.5 percent. Some say the revised plan is a compromise between the two parties but other groups still think the rate is too low.  That includes Wendy Patton with the liberal-leaning think tank Policy Matters Ohio. “The rate remains too low. The exclusions, the exemptions, the tax holidays,” Patton said, “too large. We feel that this is not a bill that does justice to the state of Ohio.”  Patton repeated her group’s call for a 5 percent severance tax rate with more funding diverted towards local governments.  The oil and gas industry says it’s supporting the measure but still wants an exemption from another tax on business known as the Commercial Activity Tax.

Shale well leaks during drilling process, forcing evacuations in Morgan County | The Columbus Dispatch: A Morgan County shale well being drilled in preparation for fracking began leaking on Sunday, forcing the evacuation of nearby residents. State and federal environmental emergency-response teams and the drilling company finally contained the mess yesterday, but not before it reached a nearby creek. The leak was discovered on Sunday, when about 10 gallons per minute of oily drilling fluid, called mud, gushed from the drill site, according to an Ohio Environmental Protection Agency report filed on Monday. Seven residents from three houses were evacuated because of the danger that escaping natural gas might lead to an explosion. According to a U.S. EPA report, a “pocket of unexpected natural gas was encountered” during drilling. That caused overpressurization and failure of the well head. One hundred barrels of drilling mud spilled from the well on Sunday, according to the well’s owner, PDC Energy of Colorado, which said some of it reached an unnamed creek near Beverly, Ohio. An unknown amount of wet gas — a mixture containing crude oil — also escaped. As of noon on Tuesday, 330 barrels of oil and water had been collected at the site, according to the U.S. EPA.

Fracking Well Leak Spills 1,600 Gallons Of Oil Drilling Lubricant Into An Ohio Tributary -- About 1,600 gallons of oil-based lubricant leaked into an Ohio river tributary this week, after an equipment failure at an oil and gas well.The rig site is located in southeastern Ohio near the town of Beverly, and is owned by PDC Energy Inc. One of the company’s contractors is handling the cleanup, under the supervision of Ohio’s Environmental Protection Agency. A spokesperson for PDC told the Associated Press that workers at the site noticed a build up in high pressure in the well, but were unable to contain it thanks to malfunctioning equipment at the well head.That released the oil based fluid, called “mud,” which is used to lubricate the equipment in the well bore during drilling. The mud reached a creek that serves as a tributary to the Muskingum River, and cleanup crews are using containment dams to prevent the fluid from spreading any further.Both the sheriff and fire departments for Morgan County were called in following the leak, and PDC paid to relocate several nearby residents to ensure no one would be harmed if leaking natural gas led to an explosion. Officials said the spill was contained by Wednesday, though also added it could be harmful to marine life.

Chinese oil firm completes acquisition of US shale gas blocks | - China Petrochemical Corp. (Sinopec), the country’s second-largest oil producer, today said it has completed the acquisition of one-third of the equity of Devon Energy Corp’s five shale gas assetsin the United States. The acquisition cost Sinopec nearly USD 2.44 billion. The five shale gas blocks owned by the US-based Devon are Niobrara, Mississippian, Ohio Utica Shale, the Michigan Basin and Tuscaloosa Marine Shale, Sinopec said in a statement on its website. Shale gas is found in sedimentary rocks below the earth’s surface. The acquisition is Sinopec’s first effort to enter the oil and gas exploration and development business in the US. The move will enable Sinopec to capitalise on Devon’s proficiency in producing oil and gas from shale and other unconventional basins, as part of China’s drive to develop clean energy, Xinhua quoted analysts as saying. Sinopec has made a USD 732-million cash payment and will pay the remainder in the form of a drilling carry. The entire USD 1.71-billion will be realised by the end of 2014, according to Sinopec’s statement.

3/5/2013 — Arkansas Gas Explosion – Evacuations – BHP compressor station at Fracking operation Clinton Arkansas gas flow now shut off from nearby FRACKING wells — due to last nights Arkansas gas explosion in the fracking fields.. A fire that followed a blast at a natural gas compression station in Van Buren County led to several dozen homes being evacuated for a time. A statement from BHP Billiton Petroleum says the fire started at about 1:30 p.m. Monday and was out by 2:15 p.m.The gas company was able to remotely shut down the compressor and the flow of gas from nearby wells in Clinton. The gas which exploded.. came from the wells nearby just as I said last night on my facebook: It is confirmed to be a gas explosion.. the gas of course comes from the frack wells , as of today they have now shut off the frack wells in Clinton. This Arkansas fracking situation is just like Utah 2 months ago – Just like California 1 month ago – both which had large explosions and subsequently the entire collection fields were shut down.

WASHINGTON: Geophysicists link fracking boom to increase in earthquakes — The swarm of earthquakes went on for months in North Central Texas, rattling homes, with reports of broken water pipes and cracked walls and locals blaming the shudders on the fracking boom that’s led to skyrocketing oil and gas production around the nation. Darlia Hobbs, who lives on Eagle Mountain Lake, about a dozen miles from Fort Worth, said that more than 30 quakes had hit from November to January. “We have had way too many earthquakes out here because of the fracking and disposal wells,” she said in an interview. While the dispute over the cause remains, leading geophysicists are now saying Hobbs and other residents might be right to point the finger at oil and gas activities.“It is certainly possible, and in large part that is based on what else we’ve seen in the Fort Worth basin in terms of the rise of earthquakes since 2008,” William Ellsworth, a U.S. Geological Survey seismologist, said in an interview Thursday.  Ellsworth said the Dallas-Fort Worth region previously had just a single known earthquake, in 1950.  Since 2008, he said, there have been more than 70 big enough to feel. Those include earthquakes at the Dallas-Fort Worth airport that scientists linked to a nearby injection well.

Earthquake Experts: Yes, Fracking Earthquakes Are A Thing -- When the Seismological Society of America says that fracking earthquakes are a real thing, then it’s a good bet that they are. The annual SSA meeting last Thursday featured a daylong session on “Induced Seismicity” that featured new research indicating that oil and gas fracking, and the practice of disposing wastewater underground, can alter the state of an existing fault. The result is to spread the range of seismic hazard farther out from the faultline than previously thought. While we’re waiting for Fox News to find a seismic denialist to let the public know that this is all just a bunch of hooey, let’s take a closer look at that research. SSA cites significant increases in seismic activity linked to increased fracking and wastewater operations in Colorado, Oklahoma, Texas, Arkansas and Ohio among other states. To give you an idea of how significant, the average rate of earthquakes above 3.0 was 21 from 1967 to 2000 according to the US Geological Survey, but it was about 100 per year between 2010 and 2012.Those numbers are already jumping up. As of last month, in Oklahoma alone more than 100 3.0-and-up earthquakes have been recorded.The Induced Seismicity session at the SSA meeting featured case studies in the aforementioned US states as well as locations in Spain and Italy (abstracts are available here).One new study under discussion at the SSA meeting was conducted by Canada’s Western University in Ontario. It details how fracking wastewater disposal and other new sources of seismicity can create new hazards that are not accounted for in existing building codes and infrastructure planning:…the hazard from induced seismicity can overwhelm the hazard from pre-existing natural seismicity, increasing the risk to structures that were originally designed for regions of low to moderate seismic activity.  When we say infrastructure planning, that includes dams, nuclear power plants, underground pipelines, and other features of the built environment that become damage multipliers when affected by earthquakes.

Fracking-linked earthquakes likely to worsen – seismologists —Ongoing hydraulic fracking operations will only exacerbate seismic activity, leading to heightened earthquakes in areas where wastewater is injected deep underground, according to new research. Scientists attending the Seismological Society of America (SSA) annual meeting said Thursday that this storage of wastewater in wells deep below the earth’s surface, in addition to fracking’s other processes, is changing the stress on existing faults, which could mean more frequent and larger quakes in the future.  Researchers previously believed quakes that resulted from fracking could not exceed a magnitude of 5.0, though stronger seismic events were recorded in 2011 around two heavily drilled areas in Colorado and Oklahoma. “This demonstrates there is a significant hazard,” said Justin Rubinstein, a research geophysicist at the US Geological Survey (USGS), according to TIME magazine. “We need to address ongoing seismicity.” Not all of the more than 30,000 fracking disposal wells are linked to quakes, but an accumulating body of evidence associates an uptick in seismic activity to fracking developments amid the current domestic energy boom. “There are so many injection operations throughout much of the US now that even though a small fraction might induce quakes, those quakes have contributed dramatically to the seismic hazard, especially east of the Rockies,” said Arthur McGarr, a USGS scientist. Scientists believe the cumulative effect of these operations could result in larger quakes becoming more common over time.

Oklahoma Should Brace For A Big Earthquake  -- On Monday, the U.S. Geological Survey (USGS) issued an earthquake warning for a state east of the Rockies — for the first time ever. The warning was for Oklahoma, where the rate of earthquakes has increased by about 50 percent since last October. The sharp uptick in small quakes increased the likelihood of larger, more dangerous earthquakes — 5.0 and greater — in the future, the scientists warned. Why is Oklahoma suddenly rivaling California for the most earthquakes per square mile? The researchers from USGS and the Oklahoma Geological Survey say that fracking activities may be contributing to the state’s new seismic reality.   “The recent earthquake rate changes are not due to typical, random fluctuations in natural seismicity rates,” the report stated.  While fracking itself has been linked to a handful of earthquakes, it is the injection of fracking wastewater deep into the earth that is believed to trigger most fracking-related tremors. The fluid increases underground pressure and acts as a lubricant on faults.  According to the U.S. Environmental Protection Agency, there are more than 144,000 wastewater injection wells in the country that together accept around 2 billion gallons of fluid a day.

Two Frackquakes a Day. In One County -- For the first time in recorded history, Parker County, Texas, in the heart of the Barnett Shale, is experiencing an average of 2 frackquakes a day, according to a new study.  – There have been more than 300 earthquakes reported in Parker County since December, according to just-published research conducted by an earthquake study team. In preliminary findings released Wednesday, the team reported that the quakes show a complex fault system in the area near Reno and Azle, which started experiencing quakes for the first time in November.The progress report from the SMU North Texas Earthquake Study said the relation of the quakes to two nearby waste-water injection wells remains a major question. Preliminary locations for the earthquakes show them occurring within one to two kilometers of the well sites. The U.S. Geological Survey has stated wastewater disposal into deep geologic formations is a likely contributing factor to an increase in quakes. The USGS issued a joint earthquake advisory with the Oklahoma Geological Survey Tuesday, because of hundreds of temblors there.

Fracked off the Road: — Booming production of oil and natural gas has exacted a little-known price on some of the nation’s roads, contributing to a spike in traffic fatalities in states where many streets and highways are choked with large trucks and heavy drilling equipment. An Associated Press analysis of traffic deaths and U.S. census data in six drilling states shows that in some places, fatalities have more than quadrupled since 2004 — a period when most American roads have become much safer even as the population has grown. “We are just so swamped,” said Sheriff Dwayne Villanueva of Karnes County, Texas, where authorities have been overwhelmed by the surge in serious accidents The industry acknowledges the problem, and traffic agencies and oil companies say they are taking steps to improve safety. But no one imagines that the risks will be eliminated quickly or easily.  In North Dakota drilling counties, the population has soared 43 percent over the last decade, while traffic fatalities increased 350 percent, to 63 last year from 14 ten years ago. Roads in those counties were nearly twice as deadly per mile driven than the rest of the state. In one Texas drilling district, drivers were 2.5 times more likely to die in a fatal crash per mile driven compared with the statewide average.

Got Fracking Slime ? - On  your road, in your creek, on your car ? Check out Fractracker’s updated map of where the frackers are dumping toxic radioactive goo on roads. Why are they dumping in New York ? Because it’s too far to truck the filth to Idafrackho. And the disposal wells in Ohio are full up. So the fix is in between the politicians and the frack waste haulers to dump it in New York. There is a rather straightforward solution to this . . . ban the stuff. No dumping on the road, not in the landfill, not in the water treatment plant. If your politicians haven’t already done so, get yourself some new politicians. More FOIL’d documentation on gas brine-spreading on NYS’s roads.New information has just been added to the map for Genesee, Orleans, and Wyoming Counties in New York State.

Moratorium on Frack Filth in Connecticut  -- Until 2017 or until scientist find a way to make radium 226 harmless for the next 2,000 years or so.  Whichever comes sooner. Or just go to Plan B and put it on a Bomb Train to Idafrackingho, the birthplace of Sarah Palin, where they apparently will take any sort of fracking filth, no questions asked. HARTFORD, Conn. (AP) – Connecticut lawmakers have reached a bipartisan compromise on how to handle the possibility of waste from fracking coming to Connecticut. The Senate on Monday was debating the proposal, which creates a moratorium on the waste being stored of disposed of in the state until the Department of Energy and Environmental Protection adopts regulations on the matter. DEEP has until July 1, 2017, to submit proposed regulations to the legislature’s Regulations Review Committee. Legislators originally considered banning drilling fluid and other waste generated as a byproduct of gas exploration. However, there were some concerns that an out-right ban could harm scientists in Connecticut who might find ways to safely dispose of the waste.

Can Rail Rebound From Rough Winter With New Oil Rules? --Railroad companies fared well last year as the U.S. economy expanded, though how quickly they're able to adapt to transportation rules for oil delivery may determine how well they steam ahead. North American traffic increased 10.8 percent and monthly delivery of petroleum products was up 12.5 percent year-on-year. There isn't enough pipeline capacity in place to keep up with the increased rate of crude oil production in North America. That's left the rail sector as the primary delivery method of choice in the interim. The U.S. Department of Transportation issued an emergency order May 7 for rail cars carrying crude oil, specifically from the Bakken reserve area in North Dakota.  Operators delivering more than 23,800 barrels of Bakken crude oil, which fits in about 35 tank cars, are required to notify authorities along their route of how much they're carrying and how much traffic is expected. A CSX Corp. train carrying Bakken crude oil to a refinery in Virginia derailed April 30. Though no injuries were reported, several rail cars caught fire and some of the oil spilled into the James River in Lynchburg, Va.

New plays may put pressure on pipelines -- Louisiana is poised to be the world’s pipeline epicenter where lines carrying oil and gas from Midwestern and Northeastern shale plays and reserves are carried to coastal refineries and ports. That is the prediction in a new study from research firm ICF International. The study also notes that Louisiana does not have enough pipeline for this new demand. Some of the thousands of pipelines currently in Louisiana need of repair or replacement. Some of the existing Louisiana pipeline will need to reverse the direction of their flows. ICF vice president Greg Hopper spoke with the Daily Advertiser, about the impact new pipelines would have on Acadiana.“Pipeline construction and maintenance, adding the necessary delivery stations, compressor stations, natural gas storage units--all of this generates jobs,” Hopper said. He added that the process of building an interstate pipeline can take “two and half to four years. Reversing the flow of a pipeline can take the same amount of time.”

Introducing TransCanada’s Keystone XL for Fracking » When most environmentalists and folks who follow pipeline markets think of TransCanada, they think of the proposed northern half of its KeystoneXL tar sands pipeline. Flying beneath the public radar, though, is another TransCanada-proposed pipeline with a similar function as Keystone XL. But rather than for carrying tar sands bitumen to the Gulf Coast, this pipeline would bring to market shale gas obtained via hydraulic fracturing (“fracking”). Meet TransCanada’s ANR Pipeline System. Although not actually a new pipeline system, TransCanada wants ANR retooled to serve domestic and export markets for gas fracked from the Marcellus Shale basin and the Utica Shale basin via its Southeast Main Line. “The [current Southeast Main Line] moves gas from south Louisiana (including offshore) to Michigan where it has a strong market presence,” explains a March 27 article appearing in industry publication RBN Energy. Because of the immense amount of shale gas being produced in the Marcellus and Utica, TransCanada seeks a flow reversal in the Southeast Main Line of its ANR Pipeline System. TransCanada spokeswoman Gretchen Krueger told DeSmogBlog that ANR’s flow reversal is a “more efficient use of the system based on market demand.”TransCanada has already drawn significant interest from customers in the open seasons and negotiations held to date, so much so it expects to begin the flow reversal in 2015. “ANR Pipeline system has secured almost 2.0 billion cubic feet a day (Bcf/d) of firm natural gas transportation commitments on its Southeast Main Line (SEML) at maximum rates for an average term of 23 years,” reads a March 31 TransCanada press release. ”ANR secured contracts on available capacity on the [South East Mainline] to move Utica and Marcellus shale gas to points north and south on the system.”

Could NAFTA force the Keystone XL pipeline on the United States? - As the Obama administration puts off once again any decision on authorizing the Keystone XL pipeline, there are whispers of another intriguing possibility. If the U.S. government fails to approve the pipeline soon or rejects it outright, the Canadians may challenge the delay or rejection under the provisions of the North American Free Trade Agreement (NAFTA) signed by both countries. This move opens up a politically attractive option not previously available to the Obama administration, something I'll discuss below. I've been wondering about how NAFTA might affect any decision. Under its provisions, Canada is obliged to maintain the same ratio of exports to total production of oil and natural gas as prevailed in the previous 36 months regardless of the situation, that is, emergency or no.So, what if Canada decides to expand oil production from the tar sands and export that oil to Asia? Would that production be included in total Canadian production for the purposes of the treaty? Could the United States proceed against Canada for reducing the proportion that the United States is receiving from total production?But now it seems that with the U.S. government dithering over the Keystone XL pipeline decision, it is Canada that is the aggrieved party. Still, until recently I couldn't see how the NAFTA rules about export ratios would have any bearing on the Keystone decision. As the importer in the treaty, the United States seems to have an avenue for protesting any reduction or cutoff of oil deliveries, but the Canadians do not seem to have any leverage to force the United States to take more Canadian oil.However, a reader alerted me to the current thinking in Ottawa which includes preparations for a possible challenge to any rejection by the U.S. government of the Keystone XL. Under entirely different provisions of NAFTA the Canadian government is readying itself to claim that the Keystone XL project is being treated differently from other previously approved pipeline projects which now cross the U.S.-Canadian border and that such discrimination is not allowed under NAFTA.

For First Time, TransCanada Says Tar Sands Flowing to Gulf in Keystone XL South -- TransCanada admitted for the first time that tar sands oil is now flowing through Keystone XL‘s southern leg, now rebranded the Gulf Coast Pipeline Project. The company confirmed the pipeline activity in its 2014 quarter one earnings call. Asked by Argus Media reporter Iris Kuo how much of the current 530,000 barrels per day of oil flowing from the Cushing, Oklahoma to Port Arthur, Texas pipeline is tar sands (“heavy crude,” in industry lingo), TransCanada CEO Russ Girling confirmed what many had already suspected. “I don’t have that exact mix, but it does have the ability to take the domestic lights as well as any heavies that find a way down to the Cushing market, so it is a combination of the heavies and the lights,” said Girling. “I just don’t know what the percentage is.” The Keystone Pipeline System — of which Keystone XL’s northern leg is phase four of four phases — is and always has been slated to carry Alberta’s tar sands to targeted markets. So the announcement is far from a shocker. More perplexing is why it took so long for the company to tell the public that tar sands oil now flows through the half of the pipeline approved via a March 2012 Executive Order by President Barack Obama.  When DeSmogBlog reported TransCanada had begun injecting oil into the pipeline’s southern leg in December, the company would not reveal what type of oil it was.  TransCanada spokesman Shawn Howard told DeSmogblog at the time. I am not able to provide you the specific blend or breakdown as we are not permitted (by our customers) from disclosing that information to the media. There are very strict confidentiality clauses in the commercial contracts we enter into with our customers, and that precludes us from providing that. Now, though, it appears the company has let the proverbial cat out of the bag.

Researcher: BP Oil Is Becoming ‘Part Of The Geological Record’ Of The Sea Floor  - Researchers from the University of Georgia, Florida State University, and University of North Carolina spent March 30 through April 22 in the Gulf of Mexico, looking at whether the 2010 Deepwater Horizon oil spill was still impacting the ecology around the well. Andreas Teske, marine sciences professor at the University of North Carolina, told ThinkProgress that the research team found small invertebrates, including crabs and shrimp, were beginning to recolonize the region around the well. That’s a major change, he said, from the conditions around the well after the spill in 2010 — back then, the area was “completely dead.” “In a sense, this is an improvement,” he said. “But it doesn’t tell us much about whether the animals continue to be affected by the oil.”  That’s another thing the research team discovered during their trips — the oil is still on the seafloor, becoming increasingly buried by layers of sediment. Teske said that microbes ate away at some of the most toxic compounds of the oil, but the elements of the oil that can’t biodegrade are creating layers in the seafloor. This layering is what the researchers expected to find — 1,000 years from now, Teske said, people will uncover this brownish-black oil layer on the sea floor and know it was from the Deepwater Horizon spill, “back when people still depended on fossil fuels.”“The oil spill has become part of the the geological record,” he said. “Since one cannot take a gigantic vacuum cleaner and clean up this stuff, getting buried is the best alternative.”

U.S. Announces First Superstorm-Related Oil Reserve - The U.S. Department of Energy announced on May 2 that it plans to build an oil storage facility in the northeast to prepare for future emergencies. The storage reserve will hold approximately 1 million barrels of gasoline, and DOE estimates it will cost $215 million to build.  The decision to build gasoline storage infrastructure is part of the government’s response to the widespread damage caused by 2012’s Hurricane Sandy. In the super storm’s aftermath, people in New Jersey and New York suffered through periods of blackouts and gasoline shortages. Some gas stations had no supplies for 30 days and others experienced long lines.  The new reserve, to be built in the New York Harbor area, will be tapped if another disaster disrupts regular supplies. The Obama administration said they see it as the first of several oil reserves that will be constructed around the country in order to plan for future extreme weather events, believed to caused by climate change.

Venezuela Loses Challenge to Judges in $30 Billion ConocoPhillips Expropriation: – The World Bank’s arbitration forum, the International Center for the Settlement of Investment Disputes (ICSID), has ruled against Venezuela’s request to disqualify two judges who ruled against it in a multi-billion dollar suit brought by oil giant ConocoPhillips against the oil rich Latin nation over the expropriation of ConocoPhillips' investments there. In March, two of the three arbitrators on the panel rejected Venezuela’s request for a new hearing, after the panel had found in September that Venezuela had expropriated ConocoPhillips’ investments and failed to engage in “good faith” negotiations to compensate the company. Having found jurisdiction, injury and responsiblity for the breach, the ICSID panel had then called on the lawyers for both sides to move on to debating the amount of the damages that Venezuela should have to pay. Venezuela sought to have the case re-heard or re-opened and when the majority of arbitrators decided against them, they sought to have the arbitrators removed. “In the Chairman’s view, a third party undertaking a reasonable evaluation of the facts in this case, would not conclude that they indicate a manifest lack of the qualities required under … the ICSID Convention. Accordingly, the disqualification proposal must be rejected,” wrote Dr. Jim Yong Kim, Chairman of the ICSID Administrative Council, in the decision released Tuesday. “Having considered all of the facts alleged and the arguments submitted by the parties, and for the reasons stated above, the Chairman rejects the Bolivarian Republic of Venezuela’s Proposal to Disqualify Judge Kenneth Keith and Mr. L. Yves Fortier.”

The End Of An Oil Boom Is Threatening Norway's Welfare Model - Norway's energy boom is tailing off years ahead of expectations, exposing an economy unprepared for life after oil and threatening the long-term viability of the world's most generous welfare model. High spending within the sector has pushed up wages and other costs to unsustainable levels, not just for the oil and gas industry but for all sectors, and that is now acting as a drag on further energy investment. Norwegian firms outside oil have struggled to pick up the slack in what has been, for at least a decade, almost a single-track economy. How Norway handles this "curse of oil" - huge wealth that bring unhealthy dependency in its train - may hold lessons across the North Sea in Scotland, which votes on independence from the United Kingdom later this year, relying at least in part on what it sees as its oil revenues. Norway had the foresight to put aside a massive $860 billion rainy-day cash pile, or $170,000 per man, woman and child. It also has huge budget surpluses, a top-notch AAA credit rating and low unemployment, so tangible decline is not imminent. But costs have soared, non-oil exporters are struggling, the government is spending $20 billion more oil money this year than in 2007 and the generous welfare model, which depends on a steady flow of oil tax revenue may not be preparing Norwegians for tougher times. "In Norway, job security seems to be taken for granted, almost like it's a human right to have a job,"

Europe Gas Options Seen Limited by Costs at $200 Billion - Europe will struggle to eliminate its dependence on Russian natural gas any time soon, with Sanford C. Bernstein & Co. estimating the cost at more than $200 billion. Existing projects and anticipated future supply suggest the region’s reliance on Russia can drop to 25 percent by the end of the decade, from 30 percent now, according to Wood Mackenzie Ltd., a consultant. That’s about the same proportion as in 2011. While Europe has 12 options for replacing Russian gas, they would require $215 billion of infrastructure and boost annual costs by $37 billion, analysts at Sanford C. Bernstein said last month. Group of Seven leaders pledged yesterday in Rome to find new sources of energy for Europe to prevent Russia from using its oil and gas as a political weapon. Russia has said it may cut off gas supplies to Ukraine because of unpaid bills, something it did in 2006 and 2009. That boosted gas costs across the region because Ukraine is the transit point for about half of Russia’s exports to Europe. “In the short-term, there isn’t really a whole lot they can do,”

Lying or Just Stupid? - Kunstler - It’s not always easy to define what exactly is wrong with America, but what ever it is, it’s huge.—  Ilargi -- Despite its Valley Girl origins, the simple term clueless turns out to be the most accurate descriptor for America’s degenerate zeitgeist. Nobody gets it — the “it” being a rather hefty bundle of issues ranging from our energy bind to the official mismanagement of money, the manipulation of markets, the crimes in banking, the blundering foreign misadventures, the revolving door corruption in governance, the abandonment of the rule-of-law, the ominous wind-down of the Happy Motoring fiasco and the related tragedy of obsolete suburbia, the contemptuous disregard for the futures of young people, the immersive Kardashian celebrity twerking sleaze, the downward spiral of the floundering classes into pizza and Pepsi induced obesity, methedrine psychosis, and tattooed savagery, and the thick patina of public relations dishonesty that coats all of it like some toxic bacterial overgrowth. The dwindling life of our nation, where anything goes and nothing matters. But these days all we get is a low-order of wishful and clownish group-think, such as this item from today’s New York Times discussing a proposed reversal of Gazprom pipelines along the Ukraine / Slovakian frontier as the solution to the Kiev government’s fuel problem:  Nearly all the gas Washington and Brussels would like to get moving into Ukraine from Europe originally came from Russia, which pumps gas westward across Ukraine, into Slovakia and then on to customers in Germany and elsewhere. Once the gas is sold, however, Gazprom ceases to be its owner and loses its power to set the terms of its sale. Get that? To avoid depending on Russian gas, they’re going to buy Russian gas from sources other than Russia. What New York Times editor can read this story without spraying her video display with coffee? What genius in John Kerry’s “Haircut-in-Search-of-a-Brain” State Department dreamed up this dodge? Who would think that you could improve a Chinese fire drill by tacking on a Polish blanket trick (i.e. trying to make your blanket longer by cutting a foot from the top and sewing it onto the bottom).

Moscow ups stakes in gas dispute - Gazprom will only supply Ukraine with gas that has been paid for in advance from the start of June, Moscow said on Thursday, after Kiev missed another deadline to pay its mounting energy debt to the Russian company. Alexander Novak, Russia’s energy minister, said the state-controlled enterprise would move to a system of pre-payment for supplies to Ukraine from next month, bringing the simmering gas dispute between the countries a step closer to crisis. The move to pre-payment raises the prospect of a disruption in gas supplies through Ukraine – a key transit point for about 15 per cent of European gas supplies. Cash-strapped Ukraine, which this week received the first $3.2bn tranche from a $17bn International Monetary Fund bailout, has refused to accept Gazprom’s move in April to increase gas prices from a first quarter rate of $268.50 per thousand cubic metres to $485.50. Oleksandr Todiichuk, deputy chairman of Ukraine’s state gas company Naftogaz, told the Financial Times on Thursday that the risk of the dispute leading to gas disruptions that could affect EU markets was “pretty high”. Mr Todiichuk said the potential for a new “gas war” was pushing Ukraine – along with countries in the EU – to step up discussions on measures to diversify away from Russian gas. The possibility of a shift to pre-payment was raised earlier in a letter from President Vladimir Putin to European leaders, in which he gave warning that gas supplies to the continent could be disrupted if the dispute between Gazprom and Ukraine was not resolved.

Ukraine Refuses Russian Gas Price Hike -  Ukraine will not pay in advance for Russian gas at Gazprom's new, higher price, the Ukrainian Energy Minister Yuriy Prodan has said. Russia made the demand after saying Ukraine had failed to pay the bill for its April natural gas deliveries. The bill was calculated using the new rate of $485.50 (£286.50; 350 euros) per thousand cubic metres of gas. Prior to April, the Russian state-owned energy firm charged $268.50 for a thousand cubic metres. "We cannot pay in advance at the price about $480 per thousand cubic metres," the Interfax-Ukraine news agency quoted Mr Prodan as saying. Russia's energy ministry said Ukraine had missed a deadline to pay debts worth $3.5bn and that all gas sent from June will have to be paid in advance.

Obama resets the ‘pivot’ to Asia - The dust has settled down sooner than one would have thought on the US President Barack Obama's four-nation Asia tour, and the inevitable stocktaking is well under way. Obama earmarked an entire week for the trip that took him to Japan, South Korea, Malaysia and the Philippines. Without doubt, it was a major statement of the Obama administration's strategic foreign-policy reorientation. But that statement is already lending itself to varying interpretations because of endemic geopolitical realities and priorities in the contemporary world situation. The sharpest criticism is, interestingly, appearing in the US itself. The salience of the tour came to be that China didn't figure in Obama's itinerary and this is at a time when Beijing has locked horns with America's key allies in the East and South Asia Seas. Clearly, China was the elephant in the room. As the New York Times noted, "The balancing act has become even trickier because of the sharp deterioration of America's relations with Russia. Perhaps no country has more to gain from a new Cold War than China, which has historically benefited from periods of conflict between the United States and Russia." To be sure, Obama spoke to different audiences simultaneously. On the one hand, he tried to reassure US allies of its commitment to remain supportive at a juncture when there are fears that China could exploit the prevailing international climate to become even more assertive or even belligerent on the Pacific Rim. On the other hand, while vowing to defend the allies, the US would expect them to show restraint themselves and even insisted that Washington sought solid relations with Beijing and hoped to enlist the latter to find solutions to various issues. Furthermore, while underscoring at all available opportunities during his tour that "we're not interested in containing China", Obama also insisted that the US is interested in China "being a responsible and powerful proponent of the rule of law" and expected that in such a role China "has to abide by certain norms."

China Is Quietly Profiting From the Russia-Ukraine Standoff: Here's How - Much to the chagrin of the United States, China has the innate ability to negotiate major energy deals in the midst of conflict. The escalating standoff between Russia and Ukraine is making both sides a little apprehensive. Russia is far and away the largest supplier of natural gas to Europe, and the pipelines that run through Ukraine are responsible for 34% of all imports. Europe wants to diversify its energy sources exactly because of events such as the ones in Urkaine. For Russia, it will be even harder to find a client as large as Europe. It is the destination for 65% of Russian natural gas exports, and any disruption of that flow could put a pretty big hole in the Russian budget. The most logical step for Russia is to send its gas East, and what better customer than China? This Russia-China gas deal has been in the works for over 10 years, and every time neither side has come to an agreement on price. PetroChina has firmly held that it will not pay more than what Europe pays for gas -- about $10.50 per million BTU. Russia's Gazprom, the nation's largest natural gas company and the only one with export pipelines, says that the development of the Siberian fields as well as the $22 billion to construct a pipeline between the two nations would require natural gas prices above $13.50 per million BTU to make it financially feasible.

Lew Says China Must Avoid Putting Off Economic Reforms - U.S. Treasury Secretary Jacob J. Lew said he will call on Chinese leaders to let markets determine the value of the yuan and to avoid postponing measures to overhaul their economy even as growth falters. “They obviously have to worry about their short-term economic situation,” Lew said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. “What they can’t do is treat the long-term reforms as something they can just put off. They need to be serious about it.” Lew, who will meet with Chinese officials May 13 in Beijing, said that while China has made some progress in loosening restrictions on its currency, “we’ve seen some very negative movement in the exchange rate in recent months.”  Lew said he’s been telling his counterparts to avoid becoming an alternative source of funding to Russia as U.S. sanctions begin to bite. “We’ve been making the case consistently, wherever we go, that it’s unacceptable for Russia to violate Ukraine’s sovereignty,” he said. “And that when we take actions and other countries in the world take action, it is important for there not to be backfill.”

China Calls Iran A "Strategic Partner" - China is already Iran’s largest trading partner and oil customer and Iran is China’s third largest oil provider... and this week Iran and China’s Defense Ministers vowed to boost military ties following a meeting in Beijing on Monday. Chinese officials noted that "common views over many important political-security, regional and international issues, Beijing assumes Tehran as its strategic partner." On Monday China and Iran agreed to deepen defense ties, according to Chinese state media. The announcement was made following a meeting between Chinese Defense Minister Chang Wanquan and his Iranian counterpart, Hossein Dehqan. According to Reuters, which quoted a report in Xinhua News Agency, China said that bilateral relations “remained positive and steady, featuring frequent high-level exchanges and deepened political mutual trust.” Reuters also quoted Chang as saying that he is personally “confident that the friendly relations between the two countries as well as the armed forces will be reinforced” as a result of “increased mutual visits and personnel training cooperation between the armed forces.”

Beijing Shows More Caution on Africa Resource Deals -  China is taking a more cautious approach to Africa after a series of big loans and investments in resource deals over recent years have failed to pan out. Chinese Premier Li Keqiang is using an official visit to Africa this week to pledge more loans and trade deals to governments that control the commodities and oil that Beijing needs to fuel its economy. But Mr. Li’s pledges so far—trade agreements with Ethiopia and an expansion of a credit line for African nations to $30 billion from $20 billion—belie the fact that China is taking a more cautious approach to the continent after a series of big loans and investments in resource deals over recent years haven’t panned out. China’s foreign direct investment in Africa is falling. Chinese companies invested $2.5 billion in 2012, the latest official available figures, down from $3.2 billion in 2011 and a peak of $5.5 billion in 2008, according to China’s Ministry of Commerce. China’s big push into Africa, which began as its economy revved up more than a decade ago, has led to some successes. But it has also caused problems. Some African officials have berated China for acting like a colonial power. Deals have foundered amid claims that Chinese companies breached safety and environmental standards.

China Manufacturing Shrinks for 4th Month — China’s manufacturing contracted in April for the fourth straight month but the pace of decline was less severe, suggesting the downturn in the world’s No. 2 economy is bottoming out.HSBC’s purchasing managers’ index released Monday ticked up to 48.1 from 48.0 in March on a 100-point scale on which numbers above 50 indicate expansion.The reading is slightly lower than 48.3 in a preliminary version of the report last month. But it’s the first time the index has risen since it started falling from 50.9 in October.The report said new export orders contracted in April although the decrease was slight and outpaced by a faster decline in new orders overall, indicating that weak domestic demand was mainly to blame for weakness in manufacturing. Employment at factories declined for the sixth month in a row.“The latest data implied that domestic demand contracted at a slower pace, but remained sluggish,” HSBC’s report was more pessimistic than a manufacturing index released last week by the state-sanctioned China Federation of Logistics and Purchasing, which hovered above the no-change level at 50.4. The official survey gives more weight to China’s big state companies while HSBC’s focuses more on small private enterprises, and the difference indicates the latter are under more pressure amid the slowdown. Economic growth slowed to 7.4 percent over a year earlier in the first quarter, with weak trade and manufacturing fuelling concern about a possible rise in politically volatile job losses.

China Manufacturing PMI Contracts 4th Month, Employment Down 6th Month - The HSBC China Purchasing Managers’ Index™ shows China Manufacturing PMI Contracts 4th Month Key Points:

  • Output and new orders contract at slower rates
  • Staff numbers are cut for the sixth month in a row
  • Solid reduction in both input and output prices

Chinese manufacturers signalled a further deterioration in overall operating conditions during April. Both output and total new work declined over the month, albeit at weaker rates than those recorded in March. Fewer new orders led firms to cut their staffing levels at a modest pace, while purchasing activity fell for the third successive month. Meanwhile, both input costs and output charges fell markedly.  After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – posted at 48.1 in April, down fractionally from the earlier flash reading of 48.3, and up from 48.0 in March.  This signalled the fourth successive monthly deterioration in the health of the sector. Production at Chinese manufacturers fell for the third consecutive month in April, though at a weaker pace than in March. Weaker client demand was attributed by a number of survey respondents to deteriorating market conditions. Goods producers in China cut their staffing levels for the sixth month running in April, amid reports of company down-sizing policies which stemmed from lower production requirements. Moreover, the rate of job shedding accelerated from the previous month. Despite reduced workforce numbers, volumes of unfinished work fell for the third successive month in April. That said, the rate of backlog depletion was marginal.

China Manufacturing PMI Misses 6th Month In A Row As Home Sales Collapse 47% YoY - For the 6th month in a row, China HSBC Manufacturing PMI missed expectations. With a 48.1 flash print for April (vs 48.3 expectation) this is a very modest rise from March's 48.0 but is the 4th month in a row of contraction for the broader-based HSBC-version of the PMI (as opposed to the official more-SOE-biased version which remains in modest expansion). This is the longest streak of contraction since Oct 2012 (and the 3rd consecutive month of new order contraction). As if that was not enough to upset the 'recovery is around the corner' crew, home sales in China in the most recent (most frenetic typically) period, collapsed 47% year-over-year (and a stunning 65% in tier-2 cities). But apart from that - everything's great in the newly appointed largest economy on earth...

China Manufacturing Gauge Signals Risk of Deeper Slowdown - Bloomberg: China’s manufacturing contracted for a fourth month in April, according to a private survey that missed estimates and sent stocks in the region lower on concern the economy’s slowdown is deepening. A purchasing managers’ index was at 48.1, HSBC Holdings Plc and Markit Economics said in a statement today. That compared with a 48.4 median estimate from analysts surveyed by Bloomberg News, a preliminary reading of 48.3 and March’s 48. Numbers below 50 indicate contraction. Hong Kong stocks extended declines on the report, which suggests Communist Party leaders have to do more to set a floor under economic growth after property construction plunged last quarter and expansion cooled. Gross domestic product is projected to increase 7.3 percent this year as the government reins in credit, according to a Bloomberg survey, compared with an official target of about 7.5 percent.

5 indicators pointing to persistent economic weakness in China - China continues to pose a significant risk to global economic expansion. The country is close to becoming the world's largest economy and a further slowdown will be felt worldwide. From the Eurozone to South Korea, major economies are carefully tracking developments in China and the extent to which their own economies may be impacted. So far key economic and market signals from the nation point to an economy that remains in the doldrums. Here are the latest indicators:
1. The unofficial manufacturing PMI shows that the manufacturing sector is still contracting.
2. Property price correction is looming and investors are becoming jittery - both domestically and abroad. The recent yuan depreciation (see Twitter post) has exacerbated the situation. Concerns over property developers running into financial problems are rising, particularly as credit tightens.
3. Related to the issue above, industrial commodity prices in China are still depressed - unable to sustain a recovery after the sharp declines back in March. This does not bode well for industrial demand.
4. The rate swap curve remains inverted, which is never a good sign.
5. The Shanghai Composite Index is once again toying with the psychologically important 2,000 level. If we move below that level and stay there, concerns over China's economic trajectory will rise further.

Citi sees “nuclear” Chinese property bust - Citi’s Oscar Choi and Marco Sze have produced this startling assessment of the Chinese property market: A Powerful Loosening “Combo” now a MUST to Prevent a “Demand Cliff”: We believe the physical market has reached a critical point, with potential for broader- based demand shrinkage across different product-ends. Beside the recurring factors like tight credit, HPR [home purchase restrictions] policy, altered ASP [average selling price] expectations due to media reporting, etc, different to FY08/11, the downward pressure on demand is also intensified by new factors, like a weaker economy, RMB depreciation, anti- corruption, outflows of purchasing power to overseas, etc, We believe merely fine- tuning policy by the local gov’ts is insufficient to mitigate this potential correction… June/July – Last Chance to Shoot the Silver Bullet: We believe a “nuclear” impact on economy and employment from any excessive slowdown of this mega- size market (est. total housing value at RMB130-160trn, annual RMB8trn property sales and RMB3-4trn land sales) is not affordable for government and society. To prevent the “demand cliff” and a big correction, we see June/July as the LAST chance for government to introduce powerful measures. Our current judgment is that nationwide volume should peak in FY15 (not FY14, even if it is more challenging than expected), based on the argument that the gov’t could still adopt powerful policy easing to restore buyer interest and a ST volume recovery. Missing this “deadline” could bring about a downward adjustment to our national assumption (sales up 8%, ASP up 2%) and an earlier-than-expected significant correction.

How would a recession in China affect the US economy? - Plenty of gloomy economic scenarios involve a financial crisis and recession in China leading to all sorts of bad stuff. For instance, a cash-strapped Beijing would begin dumping Treasuries, causing US interest rates to spike. But a new note from Capital Economics offers an optimistic take on how a recession in China would affect the US economy. Among its major points: … a crisis in China would surely  boost safe haven demand for Treasuries from elsewhere, which could lower Treasury yields. … Since the US sends only 6.5% of its exports to China, however, even an 80% drop in sales to China would reduce US  GDP by only 0.7%.  …  The total direct exposure of US banks to China and Hong Kong is just $142bn, or 0.8% of US GDP. Even if all those loans and investments became worthless,  the Tier 1 capital ratio of US banks would only fall from 13% to 12%. … The stock of US direct investment in China is $51bn. Even if all of that had to be written off, the total loss would be worth only 0.3% of US GDP. … Finally, the US economy would actually benefit if a recession in China prompted some American  businesses to bring production back home, resulted in lower US inflation and led to lower  commodity prices. For example, a 25% fall in oil prices would boost US GDP growth by 0.4%.

How is China’s jobs market? - Despite the ongoing Western obsession with headline Chinese growth as the important threshold for more stimulus, the much more important figure is the state of employment. After all, so long as the minions are all happily employed with growing incomes, the Communist Party needn’t worry too much about idle thoughts and hands.China’s reform program is broadly speaking a shift from industrial to service industries and because the latter is more labour-intensive than former, it is quite possible that Chinese growth can slow significantly without disrupting the labour market or household income growth and require no further articificial boost. On that front, the Chinese non-manufacturing PMI (which includes some services) was out over the weekend and showed a little improvement 54.8 (vs. March was 54.5. This is the latest figure showing a modest stabilisation in Chinese economic activity. And, so far we can tell, the labour market in China is still travelling well. From Capital Economics:There has been much speculation about the rate of growth needed to ensure that the government meets its employment goal. Late last year, for example, Premier Li Keqiang said that China needs GDP growth of 7.2% to create 10 urban million jobs a year. This is the best indication we have of the lower bound of the government’s current comfort zone for GDP growth. But it looks conservative. After all, the economy last year generated 13m new urban off the back of 7.7% GDP growth.…One implication is that it makes more sense for policymakers worried about employment to focus directly on labour market indicators rather than GDP growth.Admittedly, this too is easier said than done. China does not publish a reliable measure of economy-wide unemployment, for example. But it does produce enough data for us to be fairly sure that the labour market is tight today. For example, the ratio of jobs available to jobseekers at urban labour bureaus rose to its highest on record in Q1.

Ilargi: A Stampede of Elephants in the China Shop - I’m going to take a number of different sources to paint a portrait of China. I’ll take a great series of numbers from Ambrose Evans-Pritchard, whose analysis we can all do without, and leave the analysis up to David Stockman, who goes a long way but, in my proverbial humble view, seems to be stumbling a bit towards the end. That is to say, as I’ve written before, when I look at China these days, I see a bare and basic battle for raw power, economic as well as political power, between the Chinese government and the shadow banking system it has allowed, if not encouraged, to establish and flourish, and which now has grown into a threat to the central state control that is the only model Beijing has ever either understood or been willing to apply. The Chinese shadow banking system, which you need to understand is exceedingly fluid and has more arms and branches than a cross between an octopus and a centipede, has become a state within the state. That this should happen, in my view, was baked into the cake from the start. Either the Communists could have maintained their strict hold on all facets of power and allow economic growth only in small increments, or it could, as it has chosen to do, push full steam ahead with dazzling growth numbers, but that would always have meant not just the risk, but the certainty, of relinquishing parts of their power and control. As someone mentioned a while back, if you want to have an economic system based on what we call capitalist free market ideas (leaving aside all questions that surround them for a moment), the players in that system need to have a range of – individual – freedom that will of necessity be in a direct head-on collision with – full – central control. We bear witness to that very battle for power between Beijing and the ”shadows”, right now, as we see the most often highly leveraged shadow capital change shape and identity whenever the political leadership tries to get a handle on it through banning particular forms of borrowing, lending and financing.

Whither China’s Stimulus? Don’t Look to Trust Companies For Answers -- Amid fears that China’s growth is stalling, Beijing last month tried to calm market jitters by unveiling a mini-stimulus that included more spending on railways and low-income housing. Yet at least one traditional source for such stimulus money appears to be drying up. China’s government usually relies on the country’s trust companies to obtain loans for infrastructure projects, the traditional backbone of stimulus efforts. But new data from the China Trustee Association, a government-backed industry association, shows that the pace of lending growth to such projects has actually dropped. Though net new funding by trust companies to infrastructure projects increased by 140 billion yuan ($22.5 billion) in the first quarter of 2014, that’s actually down almost 70% from 461 billion a year earlier. In fact, year-on-year trust financing has declined for the last three quarters.While Beijing has talked of building new subways and railways and renovating urban slums this year, it’s still unclear whether such talk represents new spending. But if it is in fact new money, it’s not coming from trust companies, which operate in the country’s shadow-banking sector and offer a variety of wealth-management products. With a recent spate of near-defaults on trust products, managers at trusts could be growing wary about their exposure to local government financing vehicles and their ability to repay mounting debts.

Whodunit: Yes, China’s Central Bank Was Behind the Yuan Depreciation -- It’s official: China’s central bank was behind the Chinese yuan’s recent depreciation. According to the latest data from the People’s Bank of China, the central bank bought about 174 billion yuan worth of dollars in March, a purchase it made to drive down the value of the yuan against the U.S. dollar. Big as that figure is, the amount actually is lower than historical norms. For instance, the PBOC bought, on average, some 230 billion yuan worth of dollars a month last year to hold the yuan down, according to an analysis by Bank of America Merrill Lynch. But that doesn’t mean the Chinese central bank has stepped back from strong intervention in the currency market, as promised in recent months. Rather, it only suggests that the PBOC hasn’t been offsetting the rise in the supply of the yuan in the country’s financial system that resulted from its dollar-buying intervention. Normally, the Chinese central bank would do just that: offset its dollar-buying intervention by draining liquidity from the banking system through the sale of government or central bank bills in the open market. So why hasn’t it this time? The PBOC’s recent engineering of the depreciation of the yuan was part of a bid to drive out speculators and make the currency more of a two-way bet.

China Is Not Yet #1 -- Widespread recent reports have trumpeted: “China to overtake US as top economic power this year.”  The claim is basically wrong. The US remains the world’s largest economic power by a substantial margin.The story was based on the April 29 release of a report from the ICP project of the World Bank: “2011 International Comparison Program Summary Results Release Compares the Real Size of the World Economies.”     The work of the International Comparison Program is extremely valuable.  I await eagerly their latest estimates every six years or so and I use them, including to look at China.  (Before 2005, the data collection exercise used to appear in the Penn World Tables.)The ICP numbers compare countries’ GDPs using PPP rates, rather than actual exchange rates.   This is the right thing to do if you are looking at real income per capita in order to measure people’s living standards.  But I would argue that it is the wrong thing to do if you are looking at national income in order to measure the country’s weight in the global economy. The bottom line for China is that by both criteria, income per capita (at PPP rates) or aggregate GDP (at actual exchange rates), it still has a ways to go until the day when it surpasses the US.  This in no respect detracts from the country’s impressive growth record, which at about 10% per annum for three decades constitutes a historical miracle.

China Doesn’t Want Its Economy to Be No. 1 - We’ll top the charts. But give us a little time. And while you’re at it, don’t meddle. That’s the message from Chinese state media weighing in Monday on the great three P’s debate. PPP stands for purchasing power parity, which calculates what a country’s citizens can actually buy in local currency rather that what they would have to pay for mostly imported goods by exchanging their currency for U.S. dollars. By that measure, according to calculations based on World Bank data, China will top the U.S. as the world’s largest economy this year. China isn’t breaking out the champagne, though. In a Monday editorial by the state-run Global Times, the paper said the idea that China’s economy tops the world “is not nonsense,” but doesn’t reflect the way most Chinese feel. The official Xinhua news agency echoed this sentiment, explaining that PPP is of secondary importance, since China continues to lag far behind the U.S. economically. Its GDP per capita, for instance, is less than one-seventh that of the U.S. “This country has come a long way,” the agency said. “But it remains — undeniably — a developing country with too many fish to fry.”

China fact of the day: Before the Communists came to power in 1949, China had only 22 dams of any significant size. Now the country has more than half of the world’s roughly 50,000 large dams, defined as having a height of at least 15 meters, or a storage capacity of more than three million cubic meters. Thus, China has completed, on average, at least one large dam per day since 1949. If dams of all sizes are counted, China’s total surpasses 85,000.

Over-invoicing of China’s Exports Down, Not Out - China’s efforts to stop investors from sneaking cash into the country disguised as export earnings has led to a sharp drop in the practice. But figures for trade with Hong Kong, via which most of the fake export invoicing happens, shows that it’s still occurring in a large way. And that implies some investors believe the yuan will resume its upward trajectory at a later point, despite Beijing’s successful moves to weaken the currency this year. This is how it works. Investors create fake invoices for exports to Hong Kong. That allows them to bring cash back onshore, circumventing China’s capital controls, and allowing investors to benefit from higher Chinese interest rates. The extent of the practice is visible in the difference between China’s official exports to Hong Kong and Hong Kong’s much-lower record of imports from China. The gap between China’s trade surplus with Hong Kong and Hong Kong’s recorded trade deficit with China dropped to $15.7 billion in the first quarter from $46 billion in the same-period a year earlier, the height of over-invoicing, as the practice is called. (Hong Kong’s quarterly figures were released last week.) China’s government cracked down on the practice in May last year. Authorities were concerned the yuan, which has appreciated by over 30% against the U.S. dollar since 2005, had become too much of a one-way bet for investors. A stronger yuan makes China’s exports less competitive overseas.

China’s changing exchange rate policy - China was promoted to the largest economy in the world last week, at least according to the implications of a new data set released by the World Bank. The new figures, which were not warmly welcomed by the Chinese authorities, involved a downward revision to the prices of non traded goods and services in China, therefore increasing the real value of GDP measured at purchasing power parity exchange rates. In 2014, China will overtake the US on this definition. While the absolute size of the Chinese economy is clearly of interest (see Martin Wolf’s lucid analysis here), it was inevitable that China would overtake the US on the basis of PPP measures within a few years, so the latest revelation was not exactly a shock. Furthermore, PPP-based comparisons have many drawbacks, as Michael Pettis explains here. The new price data are, however, important in another respect. This concerns the valuation of the yuan, and has direct implications for Chinese exchange rate policy, which could be on the verge of a profound change. In fact, Beijing’s attitude towards its currency could turn out to be the most important change in global macro economic policy so far in 2014.  China’s exchange rate policy has, of course, always been a controversial matter. After a decade of deliberate undervaluation, intended to promote export led growth, China finally succumbed to international pressure in 2005, and allowed the real value of the renminbi (RMB) to start rising. Since then, it has risen by about 30 per cent, with only one interruption in the aftermath of the great financial crash. The new prices data suggest that the renminbi is now approximately fairly valued. Arvind Subramanian and Martin Kessler have already crunched the numbers, and have concluded that the average level of prices in China is almost exactly where it should be compared to the US, allowing for the economy’s relative level of development. Other methods produce slightly different results, but the conclusion that the currency is no longer substantially undervalued seems robust.

Slowing Chinese economy likely to pinch US, too — After watching China narrow the U.S. lead as the world's largest economy, Americans might be tempted to cheer signs that the Chinese economy might be stumbling. Any schadenfreude would be short-sighted. In an interconnected global economy, bad news for one economic superpower is typically bad news for another — even a fierce rival. "It hurts," says Mark Zandi, chief economist at Moody's Analytics. "China is the second-largest economy on the planet. If growth slows there, it affects everybody." Zandi estimates that each 1 percentage point drop in China's economic growth causes as much damage to the U.S. economy as a $20-a-barrel increase in oil prices: It shaves 0.2 percentage point off annual U.S. growth. That isn't catastrophic. But to regain its full health nearly five years after the Great Recession officially ended, the U.S. economy needs whatever help it can get. A sharp slowdown in China also threatens the 28-member European Union, which outweighs even the United States if measured as a single economy. China is the EU's second-largest export market behind the United States. A stream of economic news from China has been rattling financial markets. Chinese manufacturing slowed in April for a fourth straight month. A Chinese lending bubble, driven by overbuilding, is stirring alarm. China's growth in the January-March quarter slowed to 7.4 percent compared with a year earlier. It was its slowest quarterly growth since the 2008-2009 global crisis. For most economies, 7.4 percent growth would qualify as explosive. The U.S. economy hasn't grown as fast as 7 percent since 1984. But for China, a still-developing economy that clocked double-digit growth through much of the 2000s, the latest figures qualify as a slump. And Americans and Chinese are linked ever more tightly economically.

China Extends Commodity Buying Tear - China extended its buying spree for major industrial commodities in April, signaling that its decelerating economy still needs huge amounts of inputs to fuel growth. China is the largest buyer of many commodities, from nickel to iron ore, and its slowing economic growth has pushed global prices down. But China’s economy is still growing fast – around 7.5% annually – and it appears that Chinese buyers have been bargain hunting for commodities and energy. The country imported an average 6.8 million barrels a day of crude oil in April, the highest daily record for a single month. Iron ore imports last month rose 24% from a year ago to 83.4 million metric tons, their second-highest level on record. Soybean imports were at their highest point since December, up 63% from a year earlier. Copper imports reached 450,000 tons, up 52% in the period. Some investors and analysts contend that while the world’s second largest economy may be slowing, Beijing is likely to avert an economic meltdown and the economy is now so large it will continue to suck in rising quantities of raw materials for years to come. “The timing of this import bulge is surprising. There may be an underlying demand pickup from the infrastructure side,” said Barclays analyst Sijin Cheng. A hint of strong demand for physical copper on the ground: premiums for the red metal in Shanghai have reached around 1,500 yuan a ton ($241), their highest level since April 2009. Premiums are what importers pay on top of the traded price to secure physical shipments. Analysts attribute a key source of demand for copper to state electricity grids rolling out tenders for cable projects.

Chinese experts 'in discussions' over building high-speed Beijing-US railway  -- China is considering plans to build a high-speed railway line to the US, the country's official media reported on Thursday. The proposed line would begin in north-east China and run up through Siberia, pass through a tunnel underneath the Pacific Ocean then cut through Alaska and Canada to reach the continental US, according to a report in the state-run Beijing Times newspaper. Crossing the Bering Strait in between Russia and Alaska would require about 200km (125 miles) of undersea tunnel, the paper said, citing Wang Mengshu, a railway expert at the Chinese Academy of Engineering. "Right now we're already in discussions. Russia has already been thinking about this for many years," Wang said. The project – nicknamed the "China-Russia-Canada-America" line – would run for 13,000km, about 3,000km further than the Trans-Siberian Railway. The entire trip would take two days, with the train travelling at an average of 350km/h (220mph).

China Trade Improves in April but Imports Subdued — China’s trade rebounded in April from the previous month’s contraction but imports were subdued in another sign of the country’s economic slowdown.Customs data Thursday showed exports rose 0.9 percent, recovering from March’s unexpected 6.6 percent decline. Imports rose 0.8 percent, up from the previous month’s 11.3 percent decline.China’s leaders are trying to nurture growth based on domestic consumption to replace a worn out model reliant on investment and trade. But the country still needs strong exports to support employment. Beijing is forecasting annual trade growth of 7.5 percent, but official data show total exports and imports down by 0.5 percent so far this year.“We expect export growth to continue to improve in the coming months amidst gradually improving global demand momentum, but we do not expect a steep recovery,” said RBS economist Louis Kuijs in a report.Weak global demand for Chinese goods has forced communist leaders to backtrack temporarily and launch mini-stimulus efforts last year and in March based on state-led investment in construction of railways, low-cost housing and other public works.Weak imports reflect slowing Chinese economic growth, which declined to 7.4 percent in the first quarter of this year. The ruling Communist Party’s growth target for this year is 7.5 percent, after last year’s 7.7 percent expansion tied 2012 for the weakest performance since 1999.

China, India Competition to Soar - As India looks to ratchet up its manufacturing exports and China expands its services industries, Asia’s two giants are going to be battling more for global markets. Senior opposition party leader Arun Jaitley told The Wall Street Journal that should his Bharatiya Janata Party come to power later this month—as some polls have predicted will happen–it would implement policies to make India a bigger manufacturer and exporter like China. At the same time China is hoping its economy will evolve so that services, like software, communications and tourism make up a higher slice of its gross domestic product.The result, a State Bank of India research note said Wednesday, will be more competition between Asia’s two, billion-person economies.“The coming years may see a fascinating duel between India and China, the two powerhouses of Asia,” said the report by Soumya Kanti Ghosh, an economist at the State Bank of India. “While, India embarks on increasing its share of manufacturing sector to 25% by 2025, China has already embarked on a mission of giving a big push to its service sector.” While India is trying to grow its manufacturing sector from about 15% of GDP now to 25% by 2025, China is trying to give a big push to its services industries. As each country dabbles in the other’s specialty they will be competing head to head more often. China was a net import of services last year. It paid for $125 billion more for services to companies outside of China than it received for services in 2014. India is a net service exporter of around $18 billion in services.

Public debt hits ¥1.025 quadrillion | The Japan Times: Japan’s national debt hit a record-high ¥1.025 quadrillion at the end of March, up ¥33 trillion from a year earlier, the Finance Ministry said on Friday. The central government debt, which increased ¥7 trillion from the end of December last year, kept rising mainly due to ballooning social security costs in line with the aging population. The balance of government bonds, financing bills and other borrowings crossed the ¥1 quadrillion mark for the first time ever at the end of June 2013. The national debt stood at ¥8.06 million per capita, based on Japan’s estimated population of 127.14 million as of April 1 this year. Finance Minister Taro Aso said the situation has become “very severe” because of slow progress in fiscal reforms. Of the debt, general government bonds increased ¥38 trillion from a year earlier to ¥743 trillion and financing bills, used to procure funds for currency market intervention, totaled ¥115 trillion, up ¥420.8 billion. But fiscal investment and loan program bonds, used to raise funds for loans to government affiliates, decreased ¥5 trillion to ¥104 trillion.

Global Manufacturing PMI Plunges To 6-Month Lows - JPMorgan's global manufacturing PMI tumbled to its lowest level since October 2013 in April with the fastest 2-month drop in almost 2 years. At 51.9, the index is still in expansion (for the 17th month in a row) but the employment sub-index dropped as there is no sign of a post-weather bounce across the world.

In South Korea, Strong Won is a Headwind to Exports - Better-than-expected April exports in South Korea, Taiwan and China have gotten economists talking about the long-awaited pickup in demand from the West. But for South Korea, a rising local currency is making an already fragile export outlook look even shakier. South Korea’s currency, the won, has climbed 2.4% this year to its highest level against the U.S. dollar since August 2008. What’s worse, it has climbed 5.5% against the currency of South Korea’s biggest export market, China, thanks to efforts by Beijing to push the yuan lower.  That could nip any recovery in the bud by making Seoul’s exports more costly.South Korea is one of Asia’s most export-dependent economies, with gross exports equivalent to more than half the country’s total output of goods and services.When China emerged as the world’s factory floor 12 years ago, South Korea became a major supplier of machinery and parts to China. China now consumes one-quarter of South Korea’s overall exports, compared to just one-tenth of exports that go to the United States.That’s part of the reason why global investors consider South Korea’s stock market – with manufacturing heavyweights Samsung Electronics and Hyundai Motor — a proxy for global demand. They’ve bought almost $3.4 billion worth of Korean stocks since March, according to Jefferies, after being net sellers all year. That’s undoubtedly helped contribute to won strength. The country seemed to get a lift in April, when exports grew 9% compared to the same month a year before, a sign that demand from the U.S. is firming.

South Korea’s FTAs Help Drive Growth Upgrade - South Korea was one of the bright spots in the latest outlook report from the Organization for Economic Cooperation and Development, and for that Seoul can feel pleased about its growing array of free-trade deals.In its report on Tuesday, the OECD said South Korea will grow by more than expected this year and next as the world economy recovers and the nation’s aggressive pursuit of free-trade agreements begins to pay off. The OECD revised upward South Korea’s gross-domestic-product growth forecast this year to 4% from a 3.8% projection in November while jacking up next year’s estimate to 4.2% from 4%. The changes are in line with the Bank of Korea’s most recent estimates. South Korea, which depends for half its growth on exports, has been among the most eager of Asia’s emerging economies to embrace free trade in recent years. South Korea has 12 separate free-trade agreements—nine of which are effective and three that are pending—covering almost 60% of the world’s markets. Seoul is either engaged in negotiations or considering pursuing talks on another 14 FTAs. The latest deals were struck in recent months with Australia and Canada. The OECD’s upward revision for Asia’s fourth largest economy stood out as the organization simultaneously lowered its global growth outlook—while stating that the world economy was less fragile than it had been for a while and that South Korea was well placed to benefit from its continuing recovery.

America's proposed TPP: buyer beware – Korea Times - Despite President Barack Obama’s charm offensive in the region, Pacific nations are well-advised to remain wary of the U.S. government’s position on the Trans-Pacific Partnership (TPP) agreement. If U.S. trade negotiators got their way, the Pacific Rim would reap surprisingly few gains — but take on significant risk. Until the United States starts to see Asia as a true trading partner, rather than a region to patronize, it is right to hold out on the TPP. Despite all Obama’s charm, the rosiest projections — from an unsuspecting report at the Peterson Institute for International Economics, no less — say that the TPP will raise incomes among the parties to the treaty by a mere 0.3 percent of GDP in 2025. Many economists see these projections as gross over-estimates. For one, they heroically assume that a doubling of exports automatically leads to more than a doubling of income. Yet even if these estimates were taken at face value, they amount to just over one penny per day per person way out in 2025 for TPP nations. In exchange for these small benefits, the U.S.’s partners in Asia and Latin America have to take on big risks. One big risk that may be a deal-breaker is that the U.S. is insisting that TPP partners surrender their right to regulate global finance. Through its financial services and investment provisions, the TPP would allow Wall Street banks to move into TPP countries’ financial services sectors. To do what? If you can believe it, to push the very financial products that triggered the biggest global financial crisis since the Great Depression. That is not progress. That’s regress, given what the world now knows about these often toxic instruments

Is Another Aspect Of The TPP They Hid From Us, Legally Stoning Gays? -- Ever hear of Brunei? It's a small (population 408,000, same as Omaha), extremely rich (5th wealthiest nation in the world, entirely based on oil and gas), fascist dictatorship on the island of Borneo that somehow escaped being incorporated into Indonesia or Malaysia. The dictator is an hereditary sultan and this one is a homophobic psychotic who has just mandated the death penalty (by stoning) for gays. He's one our our esteemed partners in the TPP. And here's where the boycott comes in. Even if you had never heard of Brunei, you well may have heard of the Dorchester Collection luxury hotel chain (which includes the Beverly Hills Hotel and Hotel Bel-Air in L.A., the Hotel Eden in Rome, London's Dorchester and 45 Park Lane, Hôtel Plaza Athénée in Paris, Hotel Principe di Savoia, and several others). They are all being boycotted starting this week. Virgin's Richard Branson is one of the organizers of the boycott. So are the Oscars.  Our old friend Curtis Ellis, the Executive Director of the American Jobs Alliance, wants to make sure people upset about the floggings, dismemberments and stoning-to-death are also aware that just as Brunei was phasing in the barbaric practices, "Obama’s chief trade negotiator Michael Froman was on Capitol Hill selling the TransPacific Partnership agreement, which would bind the U.S. to Brunei and give the Islamic Sultanate special economic privileges." It would also allow Brunei to bypass U.S. courts and go before an international tribunal to sue for lost profits from the boycott being pushed by the city of Beverly Hills and human rights advocates.

Southeast Asian Central Banks Keep Eye on Inflation — and Rates on Hold - Central banks in the Philippines, Malaysia and Indonesia held benchmark interest rates steady Thursday but signaled that further policy tightening is on the cards, reflecting building price pressures throughout the region. “The underlying reality is that all three face incipient inflation pressures,” Mizuho Bank said in an analyst note. “Indonesia and Malaysia are likely to see second-round effects from subsidy cuts, while Philippines’ fast expanding money supply may drive inflation higher in the medium term.” The Bangko Setnral ng Pilipinas was the most active of the three Southeast Asian central banks Thursday, raising the reserve requirement ratio by one percentage point for the second straight month to drain liquidity from the system. That comes as money supply has grown by nearly 35% over the past year and the supply of credit is expanding rapidly, driving a surging real-estate market. The Philippine economy is growing faster than any in Asia except China’s – expanding 7.2% last year — but the central bank will be wary of raising rates for fear of driving the peso to uncompetitive levels and discouraging foreign investment at a time when Manila desperately needs outside help to upgrade infrastructure. With the two RRR increases helping to address financial stability concerns – and at little cost, considering that the central bank doesn’t pay interest on reserve funds – the bank likely will turn its attention to inflation, with J.P. Morgan predicting a rate hike in the fourth quarter of the year. The central bank on Thursday raised its inflation forecast for the year to 4.3% from 4.2%.

Asia Must Better Educate, Train its Workforce — World Bank - Employment policies in East Asia Pacific countries favor men in salaried positions while failing to help women, young people and low-skilled workers, the World Bank said in a new report on labor in the region. Policy makers are failing to protect protect and educate  their working populations at a time when aging populations are putting a greater strain on resources. Failure to act now could hurt economic growth, the World Bank said. “Business as usual is not an option,” said Bert Hofman, chief economist for the World Bank’s East Asia and Pacific Region. “The consequences of not taking more action to ensure welfare gains from work will increasingly threaten social cohesion and, as growth moderates, will constrain productivity and limit gains in living standards.” While some countries have made progress — Thailand’s universal healthcare program was held up as an example — others have failed to focus on key areas like early-year schooling. Employers in the region often complain they cannot find people with confidence, leadership and team-building skills.“You don’t learn these things in university, you learn them in preschool,” Mr. Packard said. “These are skills that never go out of fashion and it doesn’t matter what your economy is producing.” A mix of poor educational standards and lack of opportunity has led to high youth unemployment, particularly in Indonesia and the Philippines. More than 30% of people aged 15-24 are not in employment, education or training in the region, according to the report.

The solutions to all our problems may be buried in PDFs that nobody reads: What if someone had already figured out the answers to the world's most pressing policy problems, but those solutions were buried deep in a PDF, somewhere nobody will ever read them? According to a recent report by the World Bank, that scenario is not so far-fetched. The bank is one of those high-minded organizations -- Washington is full of them -- that release hundreds, maybe thousands, of reports a year on policy issues big and small. Many of these reports are long and highly technical, and just about all of them get released to the world as a PDF report posted to the organization's Web site. The World Bank recently decided to ask an important question: Is anyone actually reading these things? They dug into their Web site traffic data and came to the following conclusions: Nearly one-third of their PDF reports had never been downloaded, not even once. Another 40 percent of their reports had been downloaded fewer than 100 times. Only 13 percent had seen more than 250 downloads in their lifetimes. Since most World Bank reports have a stated objective of informing public debate or government policy, this seems like a pretty lousy track record.

GDP Snapshots from the International Comparison Project - Here's a snapshot of per capita GDP just published by the World Bank in "Purchasing Power Parities and Real Expenditures of World Economies: Summary of Results and Findings of the 2011 International Comparison Program." I'll say more about how this calculation is done below. But first, consider the overall pattern. The colored vertical slices are countries, ranked in order of their per capita GDP, although only some of the countries are labelled. The horizontal axis shows the share of global population in each country--adding up 100% of global population. The vertical axis shows per capita GDP for that country. Thus, India and China show up as wide countries, reflecting their large populations, but below the world average of $13,460 for per capita GDP.   As another viewpoint on this data, consider the 12 largest economies of the world. It's no surprise to see the U.S. and China at the top of the list, but did you know that India is now the third-largest economy in the world, surpassing Japan and Germany? Indeed, six of the 12 largest economies in the world are now "middle-income" countries, shown in boldface type, not high-income countries.  The final column shows the rankings on a per capita basis. By this measure, the U.S. ranks behind a number of tiny economies like Qatar, United Arab Emirates, Luxembourg, and Macao, which have populations so small that they don't show up as vertical bars on the chart above. The middle column, the "exchange-rate based" measure, will be discussed below.

Brazil Still Grapples with Inflation Problem --Inflation surged again in Brazil during April, another worrying development for a central bank that’s seen as being keen to stay out of October’s presidential election.Many economists believe the central bank would like to wrap up a cycle of interest rate hikes that has lasted more than a year – at least until after the elections are over. Raising rates during the election cycle could be seen as damaging to President Dilma Rousseff, who is seeking re-election for a second term. Further hikes could choke off still weak economic growth. The central bank has already raised its key interest rate nine times over the last year, and the Selic now stands at 11%, up from 7.25% in early 2013. The bank has hinted that it’s preparing to pause, perhaps as early as its next meeting on May 27 and 28.And yet inflation is piling up, largely a result of a shock in food prices earlier this year. While those are expected to have receded slightly in April, and month-on-month inflation may be slightly lower than in March, the cumulative effect is troublesome. The inflation data will be published on Friday. A survey by The Wall Street Journal of 14 economists showed 12-month inflation likely rose to 6.42% for the 12 months ended April, up from 6.15% at the end of March. For the month of April, inflation is expected to have dipped to 0.81%, versus a rise of 0.92% in March, as those food prices have eased.

Ruble Plunge Hitting Russians Speeds Slide to Recession - “If you get your salary in rubles, a trip to the beach in Europe is going to be difficult this year,” Consumers like Isaev, spending more than a few months ago to fill a shopping cart with everyday items, may be squeezed most by the currency’s decline as inflation quickens. Wobbling consumption threatens to knock out another pillar of the economy reeling from sanctions that stoked capital flight.Unruffled by the central bank’s emergency measures, the ruble has depreciated as an expanding list of sanctions in response to President Vladimir Putin’s actions in Ukraine sparked a selloff of assets. The ruble has weakened 7.2 percent this year, the third-worst performance after the Argentine and Chilean pesos among 24 emerging-market currencies tracked by Bloomberg. The currency fell 0.5 percent over the past month. The central bank has tried to stem the ruble’s decline by raising its key interest rate 2 percentage points since March. It also intervened on the currency market to prevent a “spiral of depreciation expectations,”

In Next Russia Sanctions, West Plans to Use Scalpel, Not Hammer - When Western officials talk about using “sectoral sanctions” to ratchet up the pressure on Russia for its efforts to destabilize Ukraine, they don’t mean they will target entire industries. Rather, officials made clear Thursday, the West plans to focus a select number of companies, executives and Russian officials across energy, finance and arms industries. “As we develop this sectoral approach, the idea here is…to use the scalpel rather than a hammer to focus primarily on high tech and other investment where Russia needs us far more than we need Russia,” Victoria Nuland, assistant secretary of state for European and Eurasian affairs, told lawmakers at a hearing Thursday. The approach involves “taking a sectoral slice across a bunch of different sectors at the same time such that the pain is shared,” she said. U.S. and European officials are crafting a sanctions package to levy against Russia should Moscow continue to back efforts that disrupt Ukraine’s May 25 elections. Although Europe Monday is expected to name several more officials and two firms to their sanctions list, officials say their efforts so far are narrowly focused to be a diplomatic warning shot before pulling out the heavy sanctions artillery.

The Trade Links Between Europe and Russia - With sanctions against Russia increasing on a regular basis and with Russia's economy now heading toward a recession, one has to wonder if there could be an impact on Europe's rather weak economy since the two regions are economically interconnected.  Let's begin by looking at a chart that shows Europe's top trading partners from 2013:  As you can see, trade with Russia forms a rather important part of Europe's economy.  As a whole, Europe imports more from Russia than it exports to Russia, giving Europe a negative trade balance of €86.702 billion.  In 2013, Russia was Europe's number 2 partner when it came to imports from Russia and Russia's number 4 partner when it came to exports from the EU.  When imports and exports are summed, the total trade of €326.253 billion comprises 9.5 percent of total trade for the EU which totalled €3.419 trillion in 2013.   Over the five year period from 2009 to 2013, EU imports from Russia grew at an average annual rate of 14.6 percent and exports to Russia from the EU grew at an average annual rate of 16.2 percent.  This gives us a sense of how important trade is becoming between the two entities. Here are some statistics showing what Europe imports from Russia (2013 data):

Ukraine crisis starts to hit European firms - The economic turmoil triggered by the Ukraine crisis is beginning to hurt major European companies. From banks to brewers, the slump in Russia's economy is taking its toll on sales and profits at businesses in the rest of Europe. Weak factory orders in Germany could point to worse to come. The International Monetary Fund says Russia has already been dragged into a recession as investors flee the emerging market for fear of being caught up in the escalating conflict in eastern Ukraine. The United States and Europe accuse Moscow of stoking separatist tension in Ukraine, following its annexation of Crimea. They've frozen the assets of dozens of Russian officials, and the U.S. has gone further by targeting 18 Russian companies. Harsher measures aimed at sectors of the Russian economy will follow, they warn, if Ukraine's presidential election on May 25 is put at risk. For some European companies, the damage is already being done.

EU Cuts Euro-Area Growth Outlook as Inflation Seen Slower - The European Commission predicted low inflation will remain a threat to euro-area expansion for at least the next two years as it trimmed its economic-growth forecast and warned of the impact of tensions with Russia. The 18-nation euro zone’s inflation rate will be 0.8 percent this year and 1.2 percent in 2015, both lower than forecast in February and well below the European Central Bank’s target of just below 2 percent, the Brussels-based commission said today. Gross domestic product is projected to rise 1.7 percent in 2015, compared with the commission’s previous forecast of 1.8 percent. “Price pressures are expected to remain subdued as we expect energy prices to continue to decline and as demand is only gradually firming and unemployment is still high,” Commission Vice President Siim Kallas told reporters in Brussels. “When we consider what are the main risks for the European economy at this stage, the one main risk is clearly the external tensions and uncertainty which surrounds us, especially related to the crisis in Ukraine.” Less than a year after emerging from its longest-ever recession, the euro area remains vulnerable as fragile public finances, volatility in emerging markets and a strong euro keep a lid on the recovery. While bond-market confidence has returned, the economy is still generating less output and providing work for fewer people than before the financial crisis started in 2008.

Central bank advice on austerity - As I wrote recently, the economic debate on the impact on austerity is over bar the details. Fiscal contraction when interest rates are at their zero lower bound is likely to have a significant negative impact on output. Of course the popular debate goes on, because of absurd claims that recovering from austerity somehow validates it.  An interesting question for an economist then becomes why austerity happened. There are some groups who have a clear self interest in promoting austerity: those who would like a smaller state, for example. While arguments for ‘less government’ are commonplace among the more affluent in the US, in Europe there is much less natural antagonism to government. As a result, as Jeremy Warner said, you can only really make serious inroads into the size of the state during an economic crisis. Large banks also have a direct interest in austerity, because they need low debt to make future bank bailouts credible, enabling them to carry on paying large bonuses from the implicit state subsidy that this creates. So, from a cynical point of view, for this and other reasons those close to finance will always talk up the danger of a debt funding crisis just around the corner. However there is a large middle ground who genuinely believes austerity was required to prevent the chance of a funding crisis, particularly after Greece. Yet Quantitative Easing (QE) fundamentally changes this. If the central bank makes it known that QE drastically reduces the chance of a debt funding panic, and anyway they have the means to offset its impact if it occurred, any contrary advice from the financial sector might be defused. The middle ground might be persuaded that fiscal stimulus is possible after all.

Even Powerful Central Banks Need Help - Mohamed A. El-Erian - This week, two of the world's most powerful policy makers -- U.S. Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi -- will explain to the public and politicians how they plan to bolster lackluster economic recoveries. At the moment, there's little new they can or will say and do. Yellen, who will testify before the Joint Economic Committee of Congress, is in a better position in relative terms. The economy is recovering from a weather-induced slowdown, and the deep wounds inflicted by the global financial crisis are healing. Markets seem comfortable with her policies, and second-guessing from the academic community and other central bank watchers has waned. Not so for Draghi, who on Thursday chairs a meeting of the Governing Council, the ECB's most senior policy-making body, and then holds a news conference. A downward revision of the European Commission's growth forecast has underscored doubts about how far the recent acceleration in economic activity will go. European governments worry about an overly strong exchange rate and an impaired banking and credit system. Then there are legitimate concerns about the risk of deflation, and the serious stagflationary threat from the deteriorating situation in Ukraine. The prospect of a Japan-like period of stagnation -- including a lost decade for Europe’s unemployed, especially the young -- has many urging the ECB to be more aggressive. They would like to see further interest-rate cuts combined with a bold new bond-buying program. Some have gone so far as to recommend that the central bank seek to ease credit conditions through large-scale purchases of bonds issued by private borrowers as well as governments. Others urge caution and patience. Recognizing that unconventional measures have had only limited success elsewhere in boosting growth, they worry that further ECB intervention would introduce yet another set of distortions that would complicate the healing of the European economy.

The Most Popular Tax in History Has Real Momentum - The European Financial Transaction (a k a Robin Hood) tax scored a big legal victory on April 30, when a challenge regarding the legality of the tax brought by the British government was thrown out by the European Court of Justice. The ECJ has struck a serious blow for fairness, as the dismissal essentially chastises the British government for championing the interests of the UK’s financial industry over those of its citizens. David Hillman, spokesperson for the Robin Hood campaign, told The Guardian, “This futile legal challenge tells you all you need to know about the government’s misguided priorities: it would rather defend a privileged elite in the City than support a tax that could raise billions to tackle poverty and protect public services.” What’s more, these “misguided priorities” of David Cameron’s government became all the more apparent last Friday, when an analysis of the Bank of England’s £375 billion stimulus program determined that those public funds, according to the International Business Times, “[have] made the wealthiest 5% even richer, worsened the economic recovery, made pension pots smaller, failed to stimulate business investment, and given a bonus to financial services.”  In this environment, then, the real, non-reversed Robin Hood tax has serious momentum within Europe, just as the eleven-nation coalition behind it is expected to make an important announcement about the first phase of the tax on May 5 or 6. The proposed tax includes a 0.1 percent tax on stock and bond trades and a tax of 0.01 percent on derivatives. It’s now expected that the tax will indeed be phased in, with the levy on stock-trades comprising the first step.

EC: France Govt To Miss 3.0% Deficit Target In 2015 - France's government will miss its deficit target of 3.0% of GDP next year as economic growth picks up only moderately and public debt continues to rise, the European Commission said Monday. In its Spring European Economic Forecast report, published Monday in Brussels, the Commission also said the government is likely to end 2015 with a deficit of 3.4% of GDP, even with its recently announced plan to cut spending by E50 billion from 2015 to 2017. The Commission noted, however, that the risks to the deficit forecasts "are tilted to the downside," if government plans to freeze public-sector pensions and social welfare payments are fully implemented. "Attaining a decisive reduction in the deficit depends on the government's ability to effectively reduce public spending," the Commission said. The Commission left its forecasts for 2014 economic growth unchanged at 1.0% but slightly reduced its 2015 forecast to 1.5% from 1.7% estimated in February. It said that while domestic consumption and business investment will increasingly drive growth, foreign trade will continue to weigh on the economy because of insufficient reforms to the export sectors.

The Failure of Austerity: Portugal: Last week, Portugal announced that it was emerging from its bailout without a safety net.  This was greeted as a somewhat vindication of the austerity policies the Portuguese government utilized in order to qualify for the bail-out package.   But a deeper look at the relevant statistics shows the policies implemented as a result of austerity did more harm than good.  Let's begin with a working definition of austerity.  This concept entered the popular lexicon largely after Reinhart and Rogoff published a paper that stated countries which have a debt to GDP ratio over 90% experience weaker than expected growth.  The fact the R&R paper was later found to have major problems (a spreadsheet error that completely invalidated their hypothesis) has not detered those espousing this theory But the debt/gdp ratio has increased: The reason is GDP growth has been weak. In fact, total GDP is still 15% below its peak (in nominal terms) from 2008:And unemployment is still high: As is the long-term unemployment rate: So, to sum up, GDP growth is weak, total GDP is still below its peak of 5 years ago, the debt to GDP ratio has increased and unemployment is skyhigh. By any economic measure, this is a failure, plain and simple.

Europe’s Slide into Deflation, and What to do About ItYanis Varoufakis - Europe is in the clasp of the deflationary forces that resulted directly from its inane handling of the Eurozone crisis. In this interview, I discuss deflation and low-flation and suggest a particular form of quantitative easing that, unlike the Fed’s of the Bank of England’s QE, will not reinflate the bubbles of the financial sector but, instead, will help recycle idle savings into productive investments in Europe’s real economy.
1. Is a deflationary spiral a true risk for the Eurozone (IMF-WEO referred to a 20% probability until end of 2014)? Or would it be correct to say that we are in a state of low-flation mainly due to temporary ‘imported disinflation’?
The Eurozone is already in the clasp of powerful deflationary forces. In the Periphery, the debt-deflationary cycle remains in full swing. If GDP seems to be stabilising (e.g. Greece), or even recovering slightly (e.g. Spain), this is due to the statisticians (correctly) anticipating price deflation. These deflationary expectations mean that a further reduction in nominal GDP ‘translates’ into an anticipated… increase in real GDP (or GDP at constant prices) as long as prices fall faster than nominal GDP. This is why the statisticians are predicting ‘recovery’: Recovery in real GDP terms which, in reality, is a drop in nominal GDP that appears like recovery due to…deflation.

Deflation Threatens Europe. Policy Makers Wait. - Europe is staring into the face of the kind of deflationary cycle that has paralyzed the Japanese economy for the better part of two decades. Prices are rising far more slowly than its central bank wants, against a backdrop of astronomical unemployment on much of the Continent.Mario Draghi’s response: Give us another month.Mr. Draghi, the president of the European Central Bank, did everything he could on Thursday to hint, insinuate and flag the possibility that the central bank will unleash some new tools to combat Europe’s drift toward lower prices. Just not now. Check back with us in June, he suggested. Really. Or at least probably.The decision to wait, even as economic risks gather, highlights a pattern of behavior that has become common among central banks over the last few years — behavior that the banks themselves often come to regret. When faced with evidence that economic growth is weak and inflation too low, bankers have acted slowly and cautiously, often citing the risks of using untested tools and offering projections that better times are just around the corner.

ECB professes alarm over falling inflation but still holds fire - Telegraph: The European Central Bank has once again delayed any concrete measures to stop the eurozone sliding towards deflation but indicated action in June, and issued a stark warning about the euro exchange rate. “The strengthening of the euro in the context of low inflation and still low levels of economic activity is a serious concern,” said Mario Draghi, the ECB’s president, in the clearest bid yet to talk down the currency. “The exchange rate will have to be addressed.” His comments sent the euro tumbling a cent to $1.3852 against the dollar — although this is still close to the pain barrier of $1.40. Mr Draghi said huge inflows from Russia and the rest of the world have pushed the euro too high for an economy struggling to recover. The effect is to tighten the deflationary noose on Europe. It widely suspected that China has been buying euro bonds to hold down the yuan but there are other forces at work, including moves by European banks to repatriate some of their $4 trillion (£2.4 trillion) holdings to shore up capital ratios at home.

ECB is delighted by the splendid prospect of deflation - If Europe's elites seem nonchalant about the deflation threat staring them in the face, it is because they do not share the Anglo-Saxon and Japanese orthodoxy that letting it happen is an unforgivable policy failure. The handful of officials calling the shots at the European Central Bank and Germany's finance ministry -- with applause from Italy's hard-money "Bocconi Boys" and Spain's "Austrian School" ultras -- do not think deflation would be traumatic even if it were to happen. Some rather like the idea. Their champion is Jaime Caruana, head of the Bank for International Settlements (BIS). "The historical evidence indicates that deflations have often been associated with sustained growth in output. The Great Depression was more the exception than the rule," he said in a seminal speech last month. BIS studies show that much of the 19th century was an era of "good deflation": gently falling prices amid productivity gains and flourishing world trade.  Mr Caruana implicitly argues that we are back to the 19th century. The opening up of China and eastern Europe amounts to a "positive supply" shock for the world that pushes down inflation in a healthy way, and should not be resisted.  Of course, you can cherry pick centuries to make any point you want, and it is highly suspect to lump together chunks of time that have all kinds of ups and downs within them and lose all historical texture. The 1770s tell a very different tale. Britain imposed ferocious deflation on the North American colonies after the debt build-up of the Seven Years War, triggering a depression that caused penury across the plantations of Virginia and the Eastern seaboard. It poisoned feelings on the eve of the Revolution.

BBC News - No UK trade benefit from EU membership - Civitas report -- EU membership has not given the UK any "insider advantages" in trade with other European countries, a report by social policy think tank Civitas says. It says trade with fellow EU nations makes up no more of the UK's trade with all top economies now than it did when it first joined the EEC in 1973. The benefit of collectively negotiated EU free trade deals is also questioned. The government says the EU share of UK trade has remained consistent because of a huge growth in other markets. It seems to contradict analysis by the Confederation of British Industry. The Civitas report - called Where's the Insider Advantage? - adds that EU membership does not appear to have benefitted UK service industries either, although it admits the data available on this is not so detailed. The report, by corporate market researcher Michael Burrage, says, says: "There is no evidence to suggest that the 'heft' or 'clout' of the EU has helped secure more FTAs than those that might have been secured by independent negotiations. "There were 25 EU FTAs in force in 2012 while the Swiss had independently negotiated 26, 13 of which came into force before those of the EU and three in the same year." It adds that there is no evidence that the quality of the EU's trade agreements is any higher. The report concludes: "The evidence presented contradicts again and again those who wish to claim that the UK has enjoyed insider advantages in the single market."

Britain’s economic growth is not a sign that austerity works - Larry Summers -- The British economy has experienced the most rapid growth in the Group of 7 over the past several months. In the first quarter of 2014, it enjoyed growth at an annual rate of more than 3 percent even as the U.S. economy barely grew, continental Europe remained in the doldrums and Japan struggled to maintain momentum in the face of a major increase in the value-added tax. Naturally enough, many have seized on Britain’s strong performance as evidence vindicating the austerity strategy that the country has followed since 2010 and rejecting the secular-stagnation idea that lack of demand constrains industrial growth over the medium term.  Interpreting the British experience correctly is important because of the political stakes in Britain, the impact on future British policy and, most important, the effect on economic policy debates around the world. Unfortunately, properly interpreted, the British experience refutes austerity advocates and confirms Keynes’s warning about the dangers of indiscriminate budget-cutting in the midst of a downturn.While growth has been rapid very recently, this is only because of the depth of the hole that Britain dug for itself. Whereas in the United States gross domestic product is well above its pre-crisis peak, in Britain GDP remains below previous peak levels and even further short of levels predicted when austerity policies were implemented. Not surprisingly, given this dismal record, the debt-to-GDP ratio is now nearly 10 percentage points higher than was forecast, and the date when budget balance will be achieved has been pushed years back to the end of the decade. While the euro area has performed poorly, even a casual look at trade statistics confirms that this cannot account for most of Britain’s poor growth.

Keeping the rich rich -  Andrew Lilico says: I would prefer a system in which the wealthy were allowed to lose their money if their investments go bad, in which the state does not intervene in the economy to keep the rich rich.  I grant that we do not have such a political system now – the bank bailouts of 2008 and since have made that clear to everyone. The bailouts, though, are only a small part of the story here. There are countless other ways in which the state helps keep the rich rich, for example:

  • - The state enforces property relations, including intellectual property rights. "Private property cannot survive without the guarantee of government" says Ferdinand Mount, who's hardly a rabid leftie. This guarantee, though, is asymmetric; if you have a troublesome tenant, the police might turn up mob-handed. But if you have trouble with your phoneline, they are unlikely to raid BT's offices.
  • - Planning restrictions help to keep house prices high, to be the benefit of landlords, and help to maintain local near-monopolies for example by restricting the number of retailers in an area.
  • - The state played a key role in the process of primitive accumulation - imperialism and slavery - which provided a basis for capitalist wealth today. It wasn't Marx who wrote "All rights derive from violence, all ownership from appropriation or robbery", but von Mises.
  • - Government spending is a form of corporate welfare. At its best, it helps sustain demand for capitalist products. And at its worst - for example in overpaying for military equipment, paying for welfare-to-work programmes that don't work or just outright fraud - it gives capitalists something for nothing.
  • - The ordinary welfare state helps the rich too. Most obviously, housing benefit subsidizes landlords. But it's also the case that welfare benefits help underpin and stabilize aggregrate demand, and help to maintain a supply of labour, all of which benefits capitalists.

Wipe out rentiers with cheap money - High-income economies have had ultra-cheap money for more than five years. Japan has lived with it for almost 20. This has been policy makers’ principal response to the crises they have confronted. Inevitably, a policy of cheap money is controversial. Nonetheless, as Japan’s experience shows, the predicament may last a long time. The highest interest rate charged by any of the four most important central banks in the high-income economies is 0.5 per cent at the Bank of England. Never before this period had the rate been below 2 per cent. In the US, the eurozone and the UK, the central bank’s balance sheet is now close to a quarter of gross domestic product. In Japan, it is already close to half, and rising. True, the Federal Reserve is tapering its programme of asset purchases, and there is talk that the BoE will soon tighten policy. Yet in the eurozone and Japan the question is whether further easing might be needed. These policies have succeeded in lowering the cost of borrowing. This has made it easier to bear both the huge quantities of private debt inherited from before the crisis, and the public debt that has been accumulated in its aftermath. A report from the International Monetary Fund published in October 2013 concluded that the bond purchase programmes from November 2008 lowered US 10-year bond yields by between 90 and 200 basis points. In the UK, bond-buying that began in 2008 lowered them by between 45 and 160 basis points. In Japan, similar interventions from October 2010 lowered rates by about 30 basis points, although Japanese yields started from a lower level. Lower interest rates have also had a significant effect on the distribution of income. A study by McKinsey Global Institute published at the end of last year shows large shifts in income from net creditors to net debtors. In general, governments and non-financial corporations have gained. Insurance companies, pensions providers and households have been among the losers.

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